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Thursday, May 12, 2005

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RBI working group calls for Warehouse Receipts Act

Our Bureau

Mumbai , May 11

THE Reserve Bank of India's Working Group on Warehouse Receipts and Commodity Futures has recommended that a Warehouse Receipt Act be passed to make the instrument negotiable.

A core group constituted by the Ministry of Consumer Affairs, Food and Public Distribution is already working on drafting this Bill, the group said in its report released on Wednesday by the RBI.

The Working Group, headed by Mr Prashant Saran, said in the report that financing against warehouse receipts is not popular among banks. "The concerned banks counted lack of negotiability, absence of electronic warehouse receipts, difficulty in disposal of security in case of default and lack of trust in the receipts issued by private warehouses as constraints in further expansion of such financing," the report said.

The group also recommended setting up an umbrella structure, which could act as a Closed User Group for those engaged in the commodities business. "Everyone who may be connected with production, grading, trading or financing of commodities may become a member of the group," the report said.

It has also recommended that the Government should bring about changes in the Banking Regulation Act, permitting banks to deal in the business of agricultural commodities, including derivatives.

The group examined the prospects of warehouse-receipt-based lending in India. Popularising such lending would help farmers to realise better prices for their produce, lower access barriers, overcome the problem of lack of track record and enable banks to screen borrowers with minimum delay.

The group also recommended that banks could offer commodity-derivative-based products tailor-made to meet specific needs.

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