Warehouse receipts valid for negotiation

The Cabinet clearing the Warehousing (Development and Regulation) Bill, 2005, has paved the way for the introduction of legally valid negotiable warehouse receipt system for commodities. It is likely to be introduced in Parliament in the next session.

This will enable farmers to get loans from banks and other financial institutions against warehouse receipts for their goods kept in stores. The entire storage infrastructure, including warehouses, cold storages and other types of godowns, will be covered under the proposed law.

At present, warehouse receipts do not enjoy the trust of depositors and banks. It is at banks' discretion to lend against these receipts or not.

Normally, banks fear that they will not be able to recover the loans in the eventuality of fraud or mismanagement by the warehouses or insolvency of the depositors. The legal remedies are both time-consuming and inadequate.

In its current form, a warehouse receipt is not an unambiguous document of title but is simply a statement that the goods are placed in the warehouse.

Even if banks wish to finance farmers or other depositors of commodities against warehouse receipts, they do it only for those whom they trust. For this, they have to incur high costs in screening farmers and warehouse operators.

The proposal to introduce a negotiable warehouse receipt system in the country for all commodities, including agricultural commodities, has been pending with the government for long.

The proposal statute will make warehouse receipts a prime tool of trade and facilitate finance against it throughout the country. It will also allow banks to improve the quality of their lending portfolio and enhance their interest in lending in respect of goods kept in warehouses.

Other expected benefits of the new system include higher financial liquidity in the rural areas, lower cost of financing, shorter and more efficient supply chains, enhanced rewards for grading and quality, and better price risk management.

Besides, it will lend an impetus to expansion of rural warehousing infrastructure for the benefit of farmers and consumers. 

WAREHOUSING BILL 2005

New Bill enables farmers to get loans from banks and other FIs against warehouse receipts

Entire storage infrastructure, including warehouses, cold storages and other types of godowns, will be covered under the proposed law