Vicious Commodity Cycle

Harvest Season
Farmer

Glut in Market
Prior obligations Low Prices High Storage cost Exploitation

Distress Sale

Vicious Commodity Cycle

Harvest Season
Processor

Glut in Market
Low Prices Limited Working Capital Limited storage space

Limited Purchase of Raw Material

Inefficiency High cost of procurement
6

Possible Solution
Sell when price higher Store when price low Generate Max Return

Farmer

Store & Use when price higher Purchase when price low Generate Max Return

Processor
6

Possible Solution
Sell when price higher Store when price low Generate Max Return

Farmer Storage - Critical Link

Store & Use when price higher Purchase when price low Generate Max Return

Processor
6

Solution Explored
Storage ~ Limited Liquidity

Opportunity to Lend

Backed by Commodity

Commodity as a Collateral Better liquidity Commodity Based Financing Warehouse Receipt Financing
10

Solutions explored & Tried

Harvest Season
Farmer

Glut in Market
Prior obligations Low Prices

Distress Sale
Exploitation

Key Loans

Loans against WRs

Demat Commodity Loans

More Optimal Solutions

Shift the risk from the Borrower to the Commodity

11

Credit Potential
100% Credit Potential
39%

2006-07 Rs.389.33 Bn
23%

CAGR 12%

Avg. @ Tenure & LTV

16%

x 59% for current w/h capacity1

2010-11 Rs.766.32 Bn (Rs. 459.79 Bn adj for w/h capacity @ 60%)

Total Production
1

Internal Consumptn

Non-WRF

Credit Potential

Estimated for 2006-07 Source: Planning Comm., NABARD, RBI, Indiastat, National Accounts Statistics
11

Warehousing Scenario
Dry Agri Bulk Storage Industry in India
Risk free Lending

Integrate d Model
Innovative Warehousin g Collateral Manageme nt

18

Credit Potential
30% of the marketed surplus is estimated to be routed through Agri processors requiring WC / assessed finance

Working Capital Line

In Rs. Bn

190.42 Bn
150.39 Bn

Denotes agri priority component of lending to processors, traders & SMEs

Credit potential is expected to increase at 8% CAGR

2006-07 2010-11

11

Large Opportunity For Banks

Attractive credit potential

Priority Sector Benefit

Good NII and Fee opportunity

Relatively lower risk

17

To look at

17

A look at the Lender

Default Risk Socio Political Risk
Harvest Season
Farmer

Glut in Market
Prior obligations Low Prices

Distress Sale
Exploitation

Collateral Mgt

Liquidation Risk

Price Discovery

Price Risk

And the Product Continuum

Default Risk
Harvest Season
Farmer

Glut in Market

Collateral Mgt

Socio Political Risk

Prior obligations Low Prices

Distress Sale
Exploitation

Liquidation Risk

Price Discovery

Price Risk

Key Loans

Loans against WRs

Demat Commodity Loans

8

More Optimal Solutions

Lets discuss Mitigants

Margins

Margin Monitoring

Ascertaining Quality & Quantity

Collateral Management

Prudence

An illustration
Sep UP Punjab Rajasthan Haryana Maharashtra Madhya Pradesh Gujarat AP Karnataka Kerala Tamilnadu West Bengal Orissa Oct Nov Paddy, Maize Cotton, Paddy Cotton, Soyabean, Guar Cotton, Paddy Black/ Green Gram Soyabean Cotton Soyabean Cotton Paddy, Fertiliser Black/ Green Gram Paddy, Maize Paddy, Cotton Paddy Paddy Dec

Maize

17

17

Prudence
Off season entry into market

Borrowers Profile

Quality / Quantity Assessment

Missing triggers

Over reliance on Collateral Manager

Location of Storage

First Charge on Commodity

27