Collateral firm to kick off operations on October 1

Bank of India (BoI), Punjab National Bank (PNB), Corporation Bank, Canara Bank, Indian Farmers Fertiliser Co-operative Ltd (Iffco) and an old private sector bank will pick up equity stake in India's first collateral management company "" National Collateral Management Services Ltd (NCMSL).

The collateral management company, which commences operations on October 1, will be the first of its kind in the country to network and manage warehouses. This will facilitate farmers and small enterprises to get bank credit.

NCMSL is being floated by National Commodities and Derivatives Exchange of India (NCDEX) in association with the Geneva-based collateral management company, ACE (Audit Control and Expertise) Ltd.

Collateral management companies essentially certify and rate assets put up as collateral, which are also marked-to-market and reviewed on a regular basis to ensure the sufficiency of the collateral throughout the period of loan transaction.

"The collateral manager would provide lenders early warning signals in the event of deterioration of a borrower's repayment ability. This will enable a lender to apply a lower capital risk weight to credit secured by collateral," said a senior public bank official.

Credit worthiness of farmers will improve once warehouse receipts (WRs) are accepted as negotiable instruments. It is reported that as many as 19 existing warehouses will come under NCMSL. Subsequently, NCDEX proposes to bring over 600 warehouses into the fold.

The BoI board has approved picking up 10 per cent stake in NCMSL, which is being set up with an equity capital of around Rs 30 crore, said a senior official from NCDEX. In the first year of operations, the promoters will pump in Rs 15 crore.

As the exchange wishes to ensure that the company remains independent, no individual shareholder will be permitted to hold more than 20 per cent, with NCDEX being the core promoter, said the company official.