Pledge financing growing rapidly as adoption of e-Negotiable Warehouse Receipts help double value

In the last few years, there has been a rapid stride in credit availed by farmers and traders by pledging crops as collateral as these transactions reached Rs 2,442 crore in 2022-23, up 66 per cent over the previous year and that was only those with warehouse receipt Electronic negotiable (e-NWR).

Undertaking funding for those without electronic reports for national water resources was much higher at Rs 60,000 crore, according to industry estimates.

“Growth has been very high as pledge financing was just ₹379 crore in 2019-20. Although it doubled in 2021-22, the same financial pace could not be maintained for the last time due to restrictions on some commodity futures contracts.

What is mortgage financing?

Obtaining credit by pledging crops as collateral is Pledge Finance. Depending on the crops and the location in which they are being kept, banks typically offer 65-75 percent of the current value of the crops as loans. Until the bank loans are settled, the crops cannot be moved from the warehouses.

Financing of agricultural pledges

According to banking sources, in 2022-23, banks disbursed Rs 220 crore for rice, Rs 150 crore each for chana (gram) and caster, Rs 130 crore for mustard crop and Rs 80 crore for wheat. The sources added that these are all reserved for those who own electronic nuclear information systems.

Industry sources said pledges to fund crops such as soybeans, wheat, guar and barley are higher in the non-eNWR portion.

The Warehouse Receipt Finance Program plays a pivotal role in the agricultural value chain. As of date, the market is around Rs. 60,000 crore and is set to grow at 40 per cent CAGR. “It is an important tool that boosts rural credit and brings about financial inclusion,” said Sandeep Sabharwal, CEO of SLCM Collateral Management.

He also said that the eNRM system is an effective tool for promoting pledge financing since its scope is so broad.

WDRA recording

Only 3,927 warehouses have valid registration with the Warehouse Development and Regulation Authority (WDRA) out of approximately 55,000 warehouses in the country.

The Digital Warehouse Receipt (e-NWR) was introduced by WDRA in 2017 and became mandatory two years later for authorized warehouses.

WDRA was incorporated in 2010 under the Warehousing (Development and Regulation) Act 2007. WDRA approved warehouses are permitted to facilitate e-NWR for those who hold their goods.

Banks usually extend 65-75 percent of the value of the crop as credit in exchange for a lower than usual interest rate, currently at 8.5-11 percent.

Although public sector banks extend credit against e-NWRs, private banks usually prefer to disburse credit only when collateral managers are appointed to manage agricultural produce.

state performance

Rajasthan is at the top followed by Gujarat, Madhya Pradesh, Tamil Nadu and Karnataka where credit of Rs 1,830 crore has been disbursed against e-NWRs, which is 75 per cent of the total pledge funding across the country.

The center is still studying whether to make mandatory warehouse registration with the WDRA by amending the existing law, and the sources said that if it happens, it will be implemented in stages with selected commodities and selected centres.

In January, WDRA signed a Memorandum of Understanding (MoU) with the State Bank of India to facilitate farmers’ access to loans at low interest rates for e-NWRs and zero processing fees, and with no collateral.

A similar memorandum of understanding was also signed with PNB in ​​March and the government asked other public sector banks to consider the SBI model for extending credit against electronic national water systems.

Mortgage financing * (₹ in cr) against crops

2019-20 379
2020-21 731
2021-22 1,467
2022-23 2,442

(*vs e-NWRs only; credit disbursement without e-NWRs is more than 12 times higher)