NCDEX's new electronic warehouse receipts create market for invalid stocks

Receipt issued in Gujarat and Rajasthan for guar gum and sesame seed

The National e-Repository Limited (NERL), a subsidiary of NCDEX, issued the first lot of electronic negotiable warehouse receipts (e-NWRs) two days ago.

When the repository was inaugurated, only one such receipt was issued, but now the repository is regularising the issue of such receipts, which will be freely transferable and can be traded. NCDEX is planning to launch a segment on its spot market NEML for trading and delivering goods against which such e-NWRs have been issued. 

According to NCDEX, “The e-NWRs are being issued in Gujarat and Rajasthan for commodities such as guar gum and sesame seed.”

e-NWRs are useful to farmers and various stakeholders for getting easy access to bank finance. NERL has, in the first phase, decided to issue such receipts to those stocks that have gone beyond the validity date (Exchange Deliverable Date, or EDD) for delivering on the NCDEX futures exchange platform. However those stocks have good value for physical market traders and processors. Three-hundred-odd recognised NCDEX warehouses have stocks valued at Rs 1,700-1,800 crore. Stock regularly cross the validity date for exchange delivery purpose and the repository will first issue e-NWR for such stocks.

The e-NWR can be traded/transferred in the physical market and the record of the underlying stock will be maintained by the repository. Samir Shah, MD, NCDEX said, “We are also launching a separate segment on our spot exchange NEML (National E-Market Ltd) where these receipts can be used when goods are sold.”

As long as the goods with NCDEX-recognised warehouses don't cross the validity date, if delivered on the exchange’s platform, NCDEX ensures delivery as per its standard. But for commodities that had crossed the validity date, traders had no recourse. However, “Now, once an e-NWR is issued against such commodities, a trader can approach warehouse regulator to lodge his complaint as warehouses are also under WDRA regulator,” said Shah.

According to Kedar Deshpande, CEO, NERL, “Although it’s a small beginning, it indicates the willingness of depositors to accept goods in e-NWR. This will encourage repository participants to open accounts in e-Repository and improve the fiduciary trust of the depositors and the banks. This is seen as a step towards the achievement of NERL's objective of transforming commodities into a financial asset, improving financial liquidity, lowering the cost of financing, and ensuring better price risk management.”