Commodity sector under RBI's lens
MONETARY POLICY 2008-09/ POLICY AND THE INDIVIDUAL
The central bank has decided to carry out a supervisory review of banks' exposure to the commodity sector and has asked banks to review their advances to traders in agricultural commodities including rice, wheat, oilseeds and pulses as also advances against warehouse receipts.
Banks have been directed to exercise caution while extending such advances to ensure that bank finance is not used for hoarding.
The first review of banks books would be completed by May 15, 2008 and forwarded to the Reserve Bank for carrying out supervisory review of banks' exposure to the commodity sector.
Y V Reddy, governor, RBI said,``We have to ensure that money is not used for the wrong purposes. Service to the common man goes directly from the banking channels.''
Banks have been active in the commodity financing space through warehouse receipt financing.
"The RBI's move is to ensure that storage of commodities is not leading to hoarding. Warehouse receipt financing is being done for some time now and the central bank wants to check if the incremental financing has lead to hoarding and in turn pressure on commodity prices,'' said Romesh Sobti, MD and CEO, IndusInd Bank.
"The review is made to find out whether funds lent by banks have been used to hoard commodities."