In the last few years, there has been a rapid stride in credit availed by farmers and traders by pledging crops as collateral as such transactions reached ₹2,442 crore in 2022-23, up by 66 per cent from the previous year and that was only those who had electronic-Negotiable Warehouse Receipt (e-NWR).

The pledge finance to those without e-NWRs was much higher at ₹60,000 crore, according to industry estimates.

“The growth has been very high as pledge financing was only ₹379 crore in 2019-20. Though it was doubled in 2021-22, the same tempo could not be maintained last fiscal mainly due to restrictions on some commodities futures,” said an industry expert.

What is pledge financing?
Getting credit by pledging crops as collateral is ‘pledge financing’. Depending on crops and location where it is kept, banks normally extend 65-75 per cent of the current value of crops as loans. Till bank loans are cleared, the crops can’t be moved out of warehouses.
Crop-wise pledge financing

According to banking sources, in 2022-23, banks disbursed ₹220 crore against paddy, ₹150 crore each against chana (gram) and castor, ₹130 crore against mustard crop, and ₹80 crore against wheat. Sources added that these are all for those who possessed e-NWRs.

The pledge financing against crops like soyabean, wheat, guar, and barley is higher in the non-eNWR segment, industry sources said.

“The warehouse receipt financing program constitutes a pivotal role in the agri value chain. As of date, the market is at about ₹60,000 crore and is slated to grow at 40 per cent CAGR. It is an important instrument that enhances rural credit and brings in financial inclusion,” said Sandeep Sabharwal, CEO of collateral management firm SLCM.

He further said that e-NWR is an effective tool for promoting pledge financing since the scope is very vast.

WDRA registration

Only 3,927 warehouses have valid registration with the Warehousing Development and Regulatory Authority (WDRA) of about 55,000 warehouses in the country.

Digital warehouse receipt (e-NWR) was introduced by WDRA in 2017 and was made mandatory two years later for accredited warehouses.

WDRA was constituted in 2010 under the Warehousing (Development and Regulation) Act, 2007. Warehouses accredited by WDRA are allowed to facilitate e-NWR to those who keep their goods.

Banks normally extend 65-75 per cent of the crop value as a credit against a lower-than-normal interest rate, currently at 8.5-11 per cent.

Though public sector banks are extending the credit against e-NWRs, private banks normally prefer to disburse credit only when collateral managers are hired to manage the agri produce.

State performance

Rajasthan is at the top followed by Gujarat, Madhya Pradesh, Tamil Nadu, and Karnataka where credit worth ₹1,830 crore was disbursed against e-NWRs, which is 75 per cent of total pledge finance across the country.

The Centre is still considering whether to make mandatory registration of warehouses with WDRA by amending the current law, and sources said that if it happens, it will be phased-in with select commodities and selected centers.

In January, WDRA signed a Memorandum of Understanding (MoU) with the State Bank of India to facilitate farmers’ avail of loans at low-interest rates against e-NWRs and zero processing fees, and no additional collateral.

A similar MoU has also been signed with PNB in March and the government has requested other public sector banks to consider the SBI model to extend credit against e-NWRs.

Pledge finance* (₹ in cr) against crops

(*against e-NWRs only; Credit disbursal without e-NWRs is more than 12-times higher)