Banks to now hedge farmers' risks

Commercial banks and co-operative societies are likely to act as brokers for farmers in commodity exchanges by the year-end.

They will hedge on behalf of farmers to ensure that farmers are not losing out in case of fall in crop prices.

The National Commodity and Derivative Exchange (NCDEX) "" the biggest commodity exchange of the country "" has already given a detailed presentation to the finance and agriculture ministries to change the banking regulations for the purpose. The current norms do not allow banks to hedge in commodities.

P H Ravikumar, managing director, NCDEX, revealed this during an interactive session with members of the Bengal National Chamber of Commerce and Industry.

Ravikumar also said the exchange had approached the Forward Markets Commission (FMC) to start trading in crude oil and furnace oil on NCDEX. The exchange is set to start spot trading in natural gas by the month-end.

Ravikumar said once banks start acting as brokers then the possibility of the crop loan becoming a bad loan will reduce. "The basic idea is that banks will start selling the same amount of commodities as its exposure to crop credit or may be 75 per cent of that. So in case of a fall in price, the farmer gets an assured sale price. In turn, banks will also get the payment from farmers. This will help banks reduce bad loans," he said.

According to him, the exchange already has had 20 sittings with the finance and agriculture ministries. Commenting on crude and furnace oil, he said the trading in these two commodities will start in the next 2-3 months.

He claimed the volume in the national commodity exchanges is likely to touch one lakh crore by 2009.

Incidentally, the combined turnover of the three national commodity exchanges in 2004 was Rs 5.5 lakh crore. Dismissing the allegation that the commodity exchanges are controlled by speculators he said NCDEX is taking steps to increase physical deliveries by increasing the number of warehouses.

It is also planning to increase the number of terminals from the present 6,000 to 30,000 in the next 4-5 years.