Agriculture woes: Loans against warehouse receipts decline sharply

Lending against agricultural collateral declined during the first four months (April-July) of this financial year. Data compiled by CARE Ratings showed warehousing companies issued 12,015 negotiable receipts (NWRs) during those four months, almost equal to the 12,313 issued during the entire 2017-18. Yet, the number reflects Rs 4,909 million worth of underlying agri commodities deposited in various godowns, lower than the Rs 5,102 million deposited during FY18.

And, banks disbursed loans worth Rs 378 million for the April-July period, compared to Rs 1,185 million during FY18. In other words, they cut back despite more than 100 per cent collateral in underlying commodities being deposited.

“Banks have become conservative on agri financing over the past few months. It will take a few more months to bring normalcy. The move, however, will clean up the system,” said Sanjay Kaul, managing director at National Collateral Management Services, one of the country’s largest entities from the private sector (in this segment).

 

This comes even as farmers and traders have been facing low realisation of their produce over the past year. Many commodities, including oilseeds and pulses, are trading 30-40 per cent below the Minimum Support Price (MSP) fixed by the government. While MSP operations by state agencies has brought some respite, in some states, growers elsewhere have to be take what they get.

Experts, however, also say many large farmers and stockists have borrowed from two or three banks for one stack of underlying commodity. In such cases, warehouse keepers issue two or three NWRs, to enable applications to be made for collateral borrowing from different lenders. 

In some of these cases, the weight and value of underlying commodities have been reported as substantially lower, the onus for which is on the warehouse keepers and assayers of the inventory. On customer repayment not coming through, banks declare such lending as non-performing assets (NPAs), the dues on which are negotiated later with clients, often involving a big write-off.

“This is an ongoing practice in WR financing. Hence, banks don’t want to lend against existing stocks of agri commodities. Since harvesting of the new crop is still awaited, lending has declined,” said a senior executive from a leading collateral management company.

On the positive side, the number of receipts issued at 12,000-dd for four months being the same as last year does mean farmers and traders are using these accredited warehouses more and more.

“The average finance taken has come down from 20 per cent to 8 per cent. We are still dealing with old stocks, which will be sold in the coming months before the new crop comes in. One normally borrows when the stock is kept on hold, to be sold at a higher price or supplied through a time period – all crops are normally produced once and made available for a year. Now that we are coming to the end of the older stock, it must be for sale now, which obviates the need to borrow,” suggests Madan Sabnavis, chief economist at CARE Ratings.

Also, the average size of a WR has not changed, at about Rs 400,000. Therefore, it appears that it is the same lot of farmers/traders using these warehouses.