The merger of Forward Markets Commission and SEBI should throw up better business opportunity for commodity exchange and brighten the prospects of warehouses. Post-National Spot Exchange crisis, regulations on warehouses have been tightened and Sebi is expected to play a crucial role.

Anil Choudhary, Managing Director & CEO, National Bulk Handling Corporation – one of the leading warehouse service providers to NCDEX and MCX – spoke to BusinessLine on the key challenges in this sector.

How do you see merger of FMC with SEBI?

We are regulated by the Forward Markets Commission and Warehouse Development and Regulatory Authority. SEBI should not look at commodity trading as just a financial asset class.

It can play a far bigger and effective role. Futures exchange can give price signals to farmers six months in advance and help them decide what to grow. The futures market needs participation of financial sector, foreign institutional investors and mutual funds.

In the last 15 years, we have not given enough opportunity for the commodity futures market to perform its role.

I believe, FMC with more powers could have played a far more effective and meaningful role.

What do you expect from Sebi?

The new regulator should first understand the aspiration of the market. It has to serve a holistic purpose and not just an investment platform.

India is the largest producer and consumer of 20-odd agriculture commodities and emerging as the largest exporter in few of these commodities. In abroad, the physical market is well-developed with proper process and the futures market was developed over it.

Unfortunately, in India it is just the reverse.

We have a well-developed futures market and spot market is inefficient with multiple State government regulations and licensing process.

There is a big onus on Sebi to ensure that all the good work done by FMC is carried forward to ensure the entire eco-system of farmers, processors, traders, warehouses and consumers are allied into the system.

Do warehouses have to register with Sebi?

We are regulated by WDRA, but not all the warehouses working in public domain are registered with WDRA.

We need an effective database capturing details on the credibility of warehouses, just like the Cibil.

Since warehouses are working in a dispersed and disparate market it is imperative to have a database on the conduct of warehouses.

It will also help users to ascertain the quality of warehouse before using it.

The success of agriculture futures contract depends on what comes out of warehouse as part of delivery of the contract. We would like to see how Sebi regulation converges with that of WDRA.

Will registration with SEBI help?

We are registered with FMC, but that does help. Post-NSEL crisis, we were told that all exchange accredited warehouses should have WDRA registration.

The Government should decide who is going to regulate warehouses. We are running warehouse for the exchange, clients, large corporates, retail and banks.

There need to be more clarity on who is going to regulate. We need strong regulator be it Sebi or WDRA. Then there will be more honesty and integrity.

Why is it so difficult to register with WDRA?

We need little more convergence on what is realistically possible and what is not. We manage 25 to 30 lakh tonnes of commodities but hardly any commodity get rotten.

Irrespective of facilities available, WDRA should register all the warehouses operating in the public domain and give it enough time to comply with its norms.

Today, I do not have any USP if I fully comply with WDRA norms. All I get is one additional regulator to regulate me. By registering with WDRA, banks do not give 20 per cent more loan at interest rate lower by 50 basis points.

One should understand that agriculture warehousing is not economically vibrant business.

The margins are very low and the business is seasonal. Payback period for investment in warehouse is over 15 years.

The regulations should also ensure that trustworthy warehouses get a premium over others by way of financial incentives.

What is the learning for warehouse after the NSEL episode?

We need to have a well-defined process. Any process implemented should deter collusion. We employ four people for a work that can be done by one.

The warehouse supervisor takes in the goods. Sampling and testing is done by different people.

The fourth person does the audit on the entire process before issuing the warehouse receipt.

Frankly it is not a rocket science, but we have to do it as we manage commodity worth ₹67,000 crore and the impairment is less than ₹20 crore.

The 25-30 member audit team reports directly to me. We have a whistleblower policy. We encourage each staff to report if they detect some unethical happening in the organisation.

We have a particular e-mail ID where they can report even against me directly to the board. We also give cash reward for useful alerts.