Tea Board moves to make auction system more transparent

The Tea Board of India has appointed consultants A F Ferguson to improve transparency in the existing auction system, including capital adequacy, in the aftermath of the default in payments by Carritt Moran, one of the oldest auction centres in the country. Basudeb Banerjee, chairman, Tea Board of India said that Ferguson had been officially appointed to study capital adequacy, margin money and a possible settlement guarantee fund (SGF).

The report would be submitted in the next six weeks.

Ferguson had earlier done a study on the auction system in 2001, which dealt primarily with pricing of teas at the auctions. An SGF is held by stock and commodity exchanges and each clearing member is required to contribute to and a provide a deposit, as may be determined by the relevant authority from time to time. The SGF is used to meet shortfalls and deficiencies arising out of clearing and settlement obligations.

The Tea Board has also advised that the auction centres should move to a settlement banking system. Banerjee said, 5-6 banks had approached and they had been advised to make a pitch before the auction centre. In the case of Carritt Moran, the failure was on the part of the brokers. However, payments would be made in one week, where a modified version of the settlement banking system would be applied.

The Calcutta Tea Traders Association (CTTA), the only licensed and official organiser of tea auctions in Kolkata, would appoint a bank for the settlement banking system.

According to the system, buyers would make payments to an escrow account through the banking settlement while brokers would have to open accounts.

As of now, the credit system prevalent in the industry was on the discretion of the brokers. In the case of Carritt Moran, it was failure on the part of the brokers to pay the buyers, with the total shortfall amounting to Rs 2.5-3 crore.

Gopal Poddar, chairman, CTTA said, the settlement banking system would come into effect from Sale 7, which on February 17.

Aditya Khaitan, chairman, Indian Tea Association and the managing director of McLeod Russel India, the world’s largest bulk tea producer said that this would be a safety mechanism.

“It is better that the money goes straight to the bank and is debited and credited through the system,” he said.