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Warehouse receipt

Warehouse receipt. Document stating the ownership of commodity Specified quantity, quality and grade Warehouse location , storage fee etc. Can be sold or used to raise a loan Used for delivery against a derivative instrument like futures contract

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Warehouse receipt

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  1. Warehouse receipt • Document stating the ownership of commodity • Specified quantity, quality and grade • Warehouse location , storage fee etc. • Can be sold or used to raise a loan • Used for delivery against a derivative instrument like futures contract • Converts agricultural produce or other inventory to a tradable warrant

  2. Legal status of warehouse receipt • Conventionally accepted as a ‘document of title’ • Transferability contingent on terms and conditions of issuer or by law • Generally issued as transferable receipt • Not a bearer instrument • Need endorsement for transferring the rights • Notice of endorsement need to be submitted to warehouse • Non-negotiable instrument

  3. Issues in warehouse receipt structure • Warehouse receipt not a negotiable instrument in India - Transfer of title is possible with endorsement - But title not free from any outstanding claims • Low credibility of the ‘warehouse' issuing the receipt - No independent warehouse accreditation body • Lack of - Performance guarantees and reliable insurance cover - Confidence in quantity and quality of underlying commodity

  4. Prerequisite for negotiability status • Grading standards for commodities • Market’s confidence in the warehouse operators • Independent approval or accreditation • Insurance and performance guarantee • External supervision and monitoring • Confidence in quality and quantity of stock • Circulation of genuine receipts • Easy transferability of commodity ownership - Electronic holding of commodity balances

  5. Why banks do not lend against commodities? • Price risk -no mechanism for hedging commodity price • Credit risk -inadequate structures to transfer risk from borrower to commodity • Operational risk –poor state of warehouse management process and control on collateral • Inadequate and irregular MIS on stock holdings

  6. Concept of collateral management • Collateral is an asset or a third-party commitment accepted by the collateral taker to secure an obligation of the collateral provider. • “Collateral” has the same meaning as “security” • Transaction intended to protect against performance risk of counter party. • Collateral Management involves managing the collateral on behalf of the collateral taker

  7. Role of collateral manager • Ensures adequate accredited warehousing space • Ensures quality and quantity of warehoused goods • Backs the same with guarantees and insurance • Provides in-bound and outbound logistics support • Advisory and Inventory Management services • Provides on-line and accurate reporting

  8. National Collateral Management Service Ltd. (NCMSL) • The first national level Collateral Management company to be set up in India • Institutional promoters: - NCDEX - Audit Control & Expertise (ACE) - ICICI Bank - Canara Bank - Corporation Bank - Punjab National Bank • Other interested institutions : - Indian Farmers Fertilizer Co-operative Limited (IFFCO) - HDFC Bank

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