Collateral management companies foray into financing, set up NBFCs

Look to extend credit to farmers and aggregators, but interest rates to be 2-2.5% higher than public sector banks'

Warehouse service providers (WSP) and collateral managers have started setting up non-banking finance companies (NBFCs) to provide funding to farmers and aggregators, along with other allied services.

Delhi-based Sohan Lal Commodity Management (SLCM) set up Kissandhan, with an initial capital infusion of Rs 50 crore in March 2014. Since then, the company has disbursed Rs 130 crore to farmers and aggregators, with an average ticket size of Rs 2.5 crore.

Kissandhan provides credit support to clients with “not-so-strong” balance sheets. It also helps farmers and aggregators that seek credit extension against their agri produce.

Warehouse keepers and collateral managers have been providing services such as post-harvest management of agri commodities, storage, expert advice in addition to quality inspection and issuing of warehouse receipts. They also tie-up with banks for extension of credit facility.

Segment leaders like National Bulk Handling Corporation (NBHC) and National Collateral Management Services  (NCMSL) are also planning to set up their own NBFC.

“We do understand that an NBFC in the commodity system, with the back-end strength of procurement and management of stocks/commodities that a WSP like us possesses, can play a meaningful role in building up the business on both procurement and financing side. We facilitate these services across the country and are looking to scale up significantly in all geographies in the coming years. “We are studying the various choices available to us in helping build up these businesses and are in the process of evaluating all the options. During this process, we shall also be looking at the option of an NBFC,” said Anil Choudhary, managing director, NBHC.

Associated with 47 banks and other financing institutions, NBHC manages Rs 70,000 crore of assets under a collateral management tie-up.

“Unlike other industries, the intention of NBFCs in agri space is not to compete with banks but to exploit untapped potential,” said Sanjay Kaul, managing director, NCMSL, while confirming its plan to set up an NBFC.

Interestingly, the interest rate from NBFCs could be at least 2-2.5 per cent higher than the base rate around which public sector banks and financial institutions extend credit under priority sector landing.

“Our cost of fund is 2-2.5 per cent higher than public sector banks. So, the lending rate could obviously be proportionately higher,” said Kaul.