Warehousing Development and Regulatory Authority and Negotiable Warehouse

Warehousing Development and Regulatory Authority and Negotiable Warehouse Receipt (NWR) System Kochi, November 4, 2017 Dr B B Pattanaik Member, WDRA

Background • Agriculture needs a proper credit system development of the economy, and farmers. • Postharvest credit in the form of Warehouse Receipt (WR) finance can contribute towards increasing farmers’ income. • Efficient Warehouse Receipt finance helps farmers in avoiding distress sale. • Scientific storage in a Warehouse reduces losses thereby adding monetary value to the produce and increasing liquidity in entire commodity chains. Controls Price volatility. • Farmers’ access to a new financing tool, enhances their ability to invest in production. • An effective WR regime requires a well organised legal and regulatory framework to set standards in

Categorization of Warehouses Private Warehouse • Production and warehousing under the same roof • Both activities are controlled by the same company. • Warehouse is just a part of the overall company operations, • Risky to use commodities in private warehouses as collateral for loans: • Other than spot checks by the bank, there is little to ensure that the goods are really present. Management Warehouse • An arrangement where a collateral management or credit support company takes over the warehouse of a depositor (producer/ customer) or a public warehouse by leasing it (or part of it) for a nominal fee, and becomes responsible for the control of the commodities to be used as collateral Public Warehouse • A large storage area that serves many businesses, . • Owned (or rented for a long period) and operated by a warehouse operator. • Stores commodities for third parties for a fee and acts as the commodities’ custodian. • Often issue warehouse receipts that are acceptable as collateral by banks. • Quality of the receipt as collateral depends on • legal and regulatory regime in the country • Financial status and integrity of the warehouse operator

Elements of a Well Developed Warehouse Receipt System

Elements of an Efficient Warehouse Receipt Financing System • An enabling legal and regulatory framework; • A regulatory and supervisory agency; • Licensed and supervised public warehouses; • Insurance and financial performance guarantees; • Banks familiar with the use of warehouse receipts.

The Warehousing (Development and Regulation) Act, 2007 • The Government of India introduced a negotiable warehouse receipt system in the country by enacting the Warehousing (Development and Regulation) Act, 2007 which was made effective from 25 th Oct, 2010. • For implementation of the provisions of the Act, the Govt. setup a Warehousing Development and Regulatory Authority w. e. f. 26 th Oct, 2010. 6

Regulation of Warehousing Business No person shall commence or carry on the business of warehousing issuing negotiable warehouse receipts unless he has obtained a registration certificate after fulfilling the prescribed norms in respect of the concerned warehouse or warehouses granted by the Authority under this Act Section 3 (1) & (2) of Warehousing (Development & Regulation) Act, 2007 7

Requirement for registration of warehouses • The warehouses should be constructed as per Bureau of Indian Standards (BIS) / FCI/CWC specifications. • The warehouses should be storage worthy for different goods • The warehouses should be equipped with all necessary equipment for weighing, handling, sampling, grading, firefighting and insect/pest management. • The warehouses should have positive net worth certified by a Chartered Accountant or credit worthiness certificate from a scheduled bank for individual warehouse or for its organization. • The warehouses should have adequate trained staff with expertise and knowledge about the scientific storage of goods to be stored in the warehouses. • Warehouses should have adequate security arrangements. • Any other requirement prescribed by the Authority from time to time. 8

Advantages of Warehouses Registered with WDRA The registered warehouses • May Issue Negotiable Warehouse Receipts on which farmers / depositors may be able to seek loans easily from banks. • Warehouses would be following certain norms / requirements and would encourage scientific storage. • They will be having trained warehousemen. • The registered warehouses would be indicating quality standards/grades of the commodities stored in their warehouses on the Negotiable Warehouse Receipt – Facilitates orderly marketing 9

Notification of Agricultural Commodities • The Authority has notified 123 agricultural commodities including 6 major cereals, 9 pulses, 13 oilseeds, 17 vegetable oils, 18 spices, etc. for issuing NWRs. • 26 horticultural commodities, such as Potato, Dehydrated Onion, Garlic, Ginger, Turmeric, Apples and Resins etc. have also been notified for issuing NWRs by cold storages. 10

Pledge Financing on NWRs • From 2011 -12, the Government of India has extended the benefit of interest subvention to small and marginal farmers against negotiable warehouse receipts. • Eligibility – small and marginal farmers having KCC and having availed crop loan. • Rate of Interest – 7% per annum. • Period of loan - 06 month. • Loan Limit – 75% of the value of the produce, valued at the market value or minimum support price declared by State/Central Government, whichever is lower, subject to maximum amount of Rs. 3. 0 lakh. 11

New Warehouse Registration Rules, Warehousing (Development and Regulation) Registration of Warehouses Rules, 2017 Sl Warehousing (Development and No. Regulation) Registration of Warehouses Rules, 2010 1 Before registration accreditation was necessary 2 3 4 One application essentially had to cover only one warehouse Initial registration was for 3 years Networth was to be only positive Warehousing (Development and Regulation) Registration of Warehouses Rules, 2017 No accreditation required before registration. after application for registration received by WDRA Physical inspection before registration One application may have one or more than one warehouses of same applicant Initial Registration is for 5 years Now Networth specified as per capacity of the warehouse More realistic and dynamic Security Deposit, depending on the aggregate value of Negotiable Warehouse Receipts issued to ensure trust of banks for pledge financing It is very well defined in the new rules 5 Security Deposit equal to Registration fee was to be submitted 6 Provision of Standard Operating Procedure (SOPs) and Know Your Depositor process was not there Migration to electronic Negotiable Now it is provided 7 12

Application Fee for Registration Unit of registration Each warehouse with a capacity of 10, 000 Ton or less Each warehouse with a capacity of more than 10, 000 Ton but less than or equal to 25, 000 Ton Each warehouse with a capacity of more than 25, 000 Ton Fee (non refundable) Rs. 20, 000 Rs. 25, 000 Rs. 30, 000 Where the applicant/ warehouseman is a Farmer Producer Organisation or a Co-operative, the fee shall be Rs. 5, 000 per warehouse.

Net worth Requirements for Registration of Warehouses Storage capacity (in tons) Net worth (Rupees in crores) Less than 1, 000 0. 5 1, 001 – 5, 000 2. 5 5, 001 – 10, 000 5 10, 001 – 25, 000 10 25, 001 – 75, 000 20 75, 001 – 1, 50, 000 30 1, 50, 001 – 5, 000 50 5, 001 and above 100 Where the applicant/ warehouseman is a Farmer Producer Organisation or a Co-operative, the net worth should be positive.

Online Registration of Warehouses – Steps Involved • logging in to WDRA portal at https: //www. wdra. gov. in • initiating ‘Portal Registration’ activity - generate login credentials • e mail ID will be the User ID and the selected Password will be Password for future Log into the WDRA Portal. • In case of non individual entities – warehouse registration is two step process. – Step I – Registration of Warehouseman initiated by the Authorised Representative of the entity notified by the entity – Step II - Registration of specific warehouses initiated by an Associate Authorised Representative notified by the entity. • Furnishing Mandatory Declaration • Payment of Application Fee

Surveillance and Monitoring mechanism for registered warehouses • Strong monitoring and surveillance system • Speedy feedback on regulatory compliance of the warehouses • More robust inspection system • Periodic feed back on performance of warehouses • Putting in place an online process for warehouse inspection system

Team of Inspecting Officers • Qualifications – Graduate in Science, Agriculture, Allied Sciences including B Tech and BE Degrees • At least five years experience in storage, assaying, inspection or testing of agricultural commodities, warehousing, logistics, and supply chain management. • Has conducted at least five Inspections. • Agency can add delete inspecting officers in the ream • The agency can empanel IOs or have them as their employees

Different Types of Inspections • Physical Inspection – Pre-registration – physical infrastructure • General Inspection – Post Registration, Once in a Year – Infrastructure, Stock and SOP • Surprise or Adhoc Inspection – as and when required – Infrastructure or Stock or SOP • Inspection checklist provided for all types of warehouses i. e. Conventional, Silo and Cold Storage

Online Warehouse Inspection System • WDRA has developed an online Portal integrating inspection and other regulatory processes. • Portal allows Inspection Agencies (IAs) to register. • It also facilitate allotment of Inspections to different IAs. • IAs are enabled to assign Inspection to Inspecting Officers (IOs). • IOs can login and fill/ submit Inspection reports on portal. • IO also have option to re submit the report, once WDRA decides that report needs to be re submitted.

Mandatory registration with e. NWR Repository Rule 27. With effect from such date as may be specified by the Authority, no warehouseman shall issue any negotiable warehouse receipts in physical form, and shall register with one or more repositories registered with the Authority for issuing negotiable warehouse receipts in electronic form. 20

Advantages of Electronic Negotiable Warehouse Receipts • e. NWRs will, ü facilitate easy pledge financing by banks ü help farmers / depositors to have access to a large number of buyers nationwide with better bargaining powers; ü enable multiple transfers without physical movement of goods and alternate channels of marketing to farmers and reduce the cost of intermediation for consumers; ü enable consumers (industries, processors, wholesalers, retailers etc. ) to procure graded produce at competitive prices at locations of their choice; ü promote an efficient clearing, settlement and delivery system with transparency in trading of agricultural produce. • e. NWRs can be split with obligation to transfer only a part of the commodity. 21

Thank You 22