NCDEX to jointly set up collateral mgmt firm

The National Commodities and Derivatives Exchange India (NCDEX) in association with the Geneva-based AC, a collateral management company, select public and private banks and a co-operative organisation are floating a collateral management company.

The company will be set up at the national level with an equity base of around Rs 30 crore, said a senior official from NCDEX.

The company is being set up to facilitate bank lending to standalone small and medium enterprises (SME) and agricultural sector.

The collateral manager would provide lenders early warning of a borrower's deteriorating repayment ability and also enable a lender apply a lower capital risk weight to credits which are secured by collaterals, said a banker.

This would eliminate the operational risk associated with commodity and inventory-based lending and banks would be able to concentrate on credit disbursement rather than commodity evaluation, he added.

Collateral management company certifies or rates the assets posted as collateral, daily mark to market all assets and reviews the inventory or commodity on a regular basis to assure the eligibility and sufficiency of the collateral throughout the transaction.

In the first year of operations, the promoters will pump in Rs 15 crore.

None of the shareholders will hold more than 20 per cent in the company with NCDEX begin a core promoter, said the official.

The exchange wants the company to be an independent institution and no individual stake holder will be allowed to hold a majority stake in the company, he added.