Challenging times ahead for agri warehousing, collateral management cos

Source: Business Standard

Liquidity crisis hit expansion in this sector, banks focus on large corporate to meet priority sector lending target

The warehousing and collateral management services are passing through consolidation due to government’s aggressive procurement of foodgrains and tightening of liquidity amid fear of default.

Many private single warehouse keepers, therefore, have less than 50 per cent of occupancy and hence, turning the business unviable. Consequently, single warehouses under small and medium enterprises (SMEs) and micro, small and medium enterprises (MSMEs) have put their units on block for acquisition.

Thus, agri warehousing and collateral management services sector is facing the worst challenging times since its existence. Banks have started focusing on large corporate in food processing business, seed and fertilizer distributors to meet their priority sector lending target, thereby, neglecting the core agri farm sector directly.

“Entire agri warehousing and collateral management sector is passing through consolidation. Companies in this sector are investing largely on technology for efficiency improvement. Earlier, banks used to expand their agri lending to meet their priority sector lending target which encouraged private players also to go aggressively on collateral management. Now, banks have reduced lending to the core agri sector which prompted us to follow suit in collateral management services. There is a decline in credit demand across this sector,” said Unupom Kausik, Chief Executive Officer, National Collateral Management Services Ltd (NCML).

To ease the stress in this sector, however, the government allowed entry of private players in foodgrains procurement at the minimum support price (MSP). But, stringent norms have limited scope of their engagement.

Meanwhile, SMEs and MSMEs in this sector have started borrowing from private financiers and non-banking finance companies (NBFCs) at high interest rates.

“Weak credit profile, cumbersome bank paper work and procedures, lack of adoption of electronic documentation and resources to spend time on complying with bank requirements, are challenges that lead the SMEs to adopt financing at very high interests. This drives up costs in the entire supply chain and has a direct impact on the pricing to the end customers. We gives access to better than market rate trade finance for even the smallest of SMEs, making it easy, digital and fast; and in turn increases the capital available to the entire supply chain ecosystem to grow business,” said Vinod Parmar, Global Head (sales and marketing), Vayana Network.

Interestingly, banks and financial institutions have started financing to the allied sectors such as tractor financing, seed and fertilizer purchase etc. to avoid defaults and meet the priority sector lending target. Experts believe that banks have also started lending aggressively to food processing sector under the tag of priority sector lending after revising its definition two years ago.

“The government’s aggressive procurement of agri commodities has reduced role of private players in this business. Banks are extremely cautious in funding to agri sector as they collateral managers to take responsibility of default or shortage of goods in warehouses. Being a purely service provider, collateral managers do not want to take responsibility of loan taken by farmers, processors or stockists. Hence, lending to agri sector has become a major problem,” said Sumesh Parasrampuria, Group Chief Executive Officer, Kunwarji Group.

Banks have witnessed a massive shortage in stored goods in warehouses under leading collateral managers resulting into a massive increase in their non performing assets (NPAs). Major scams in jeera, castor seed, pulses and onion have put banks on the backfoot for agri financing.

In addition to the regular foodgrains procurement by the Food Corporation of India (FCI) at the MSP, the government procured pulses and oilseeds worth Rs 441.52 billion in the last five years.