WAREHOUSE RECEIPTSPresented ByGROUP 1:Trina Bhagat(05), Meghraj Gawande(09), Hemant Kalamkar(11), Kamlesh Kunhara(16), Rishika Mittal(30), Sourabh Walke(34), Sagar Shinde (38), Jyoti Jadhav (51)

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As per state warehouses act,Warehouse Receipts means a receipt in the prescribed form issued by a licensed warehouse man to a person depositing goods in the warehouse

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INTRODUCTION..y Warehouse receipt finance uses securely stored goods as loan

collateral. y It is sometimes called inventory credit. y It allows clients, such as farmers, traders, processors and others, to deposit commodities in a secure warehouse against a receipt certifying the deposit of goods of a particular quantity, quality and grade. y Clients can then use the receipt as a form of portable collateral to request a loan from a financial institution.

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y WR may either be negotiable or non negotiable . y A non-negotiable warehouse receipt is made out to a specific

party (a person or an institution). Only this party may authorize release of goods from the warehouse. He may also transfer or assign the goods to another party, for example a bank. The warehouse company must be so notified by the transferor before the transfer or assignment becomes effective. y These documents transferred by endorsement and delivery.4

Need for Warehouse Receipts.. Leads to enhancement of the overall efficiency of the

agribusiness sector and so can be traded, sold, swapped, used as collateral to support borrowing, or accepted for delivery against a derivative instrument. Warehouse receipt system can play significant role

in reducing the pressure on the government to carry large inventory of the agricultural produce.

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Softening

the rigidity involved in handling commodities

Better credit delivery. Better loan recovery for financial institutions. Convenience in asset management. Market instrument for developing Indian economy.

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Core elements of a warehouse receipt financing system..y Core elements of a well-developed warehouse receipt system

are: 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.

y Trust is a key ingredient for warehouse receipt finance,

because the financial community must have a high degree of confidence in the system before it will undertake lending activities.7

Working of warehouse receipt system..y The basic features of warehouse receipt finance are relatively simple and y y y y

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straightforward, The client deposits a certain amount of goods into a warehouse in exchange for a warehouse receipt. The warehouse receipt conveys the right to withdraw a specified amount and quality of the commodity at any time from the warehouse. The warehouse manager is liable for guaranteeing the safety and quality of the stored commodity. The warehouse receipt can then be transferred to a bank, which provides a loan equivalent to a certain percentage (60-80%) of the market value of the stored commodity. At maturity, the client (e.g., a farmer) sells the commodity to a buyer who then either pays the bank directly, or pays the borrower who then repays the bank.

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y On receipt of the funds or an acceptable payment instrument

(e.g., a confirmed Letter of Credit), the bank surrenders the warehouse receipt to either the buyer or the seller (depending on the specifics of the transaction), y The buyer then submits the warehouse receipt to the warehouse, which releases the commodity. y In case of default on the loan, the bank can use the warehouse receipts in its possession to take delivery of and sell the commodity stored in the warehouse, to offset the amounts it is due.

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Preconditions for Viability of Warehouse Receipt System..y In order for a Warehouse Receipt system to be viable, the

economy within which it operates must meet certain conditions:y Warehouse Receipts must be functionally equivalent to

stored commodities;y The rights, liabilities, and duties of each party to a Warehouse

Receipt (for example a farmer, a bank, or a warehouseman) must be clearly defined.11

y Warehouse receipts should provide the following

information: location and amount of the commodity in storage; year, harvest and quality of the commodity; information about insurance; information about endorsements of the receipt; any other important information related to the contractual

agreement between the depositor and the warehouse operator.y Warehouse Receipts must be freely transferable by

delivery and endorsement.

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y The holder of a Warehouse Receipt must be first in line to

receive the stored goods or their fungible equivalent on liquidation or default of the warehouse; andy The prospective recipient of a Warehouse Receipt should be

able to determine, before acceptance, if there is a competing claim on the collateral underlying the receipt.

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Benefits of Warehouse Receipt..y Provide farmers with an instrument that allows them to extend

the sales period of modestly perishable products well beyond the harvesting season. y Hedging against the foreign exchange risk of foreign borrowing possible. Owners of inventories can borrow abroad in currencies for which real interest rates are lower. y Warehouse Receipts can be used by farmers to finance their production, and by processors to finance their inventories. If there is a default on any obligation guaranteed with the Warehouse Receipt

- for instance, a bank loan- the holder has first call on the underlying goods or their monetary equivalent. This will lead to an increase in the availability of credit, reduce its cost, and

mobilize external financial resources for the sector.

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y Provide secure collateral for banks by assuring holders of the

existence and condition of agricultural inventories "sight unseen." y Contribute to the creation of cash and forward markets and thus enhance competition. They can form the basis for trading commodities, since they provide all the

essential information needed to complete a transaction between a seller and a buyer. Their availability will thus both increase the volume of trade and reduce transaction costs.

y Provides a way to reduce the need of government agencies in

procurement of agricultural commodities. In order to support prices, governments can accept Warehouse Receipts when

prices drop below a support floor, rather than taking delivery of physical inventories. Since Warehouse Receipts guarantee the existence of stocks, governments can achieve their food security objectives by merely holding these receipts.16

Limitations for use in India.. Lack of awareness and training. Inappropriate trading practices. Lack of appropriate legal, regulatory and institutional

environment to support warehouse receipts. Limited familiarity of banking community with warehouse.

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y Need for splitting the Warehouse Receipt in case the

depositor has an obligation to transfer only a part of the commodities;y Need to move the Warehouse Receipt from one place to

another with risk of theft/mutilation, etc. if the transferor and transferee are at two different locations;y Risk of forgery.

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Way Forward..

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y Warehouse receipt for grains were first recorded in 2400 BC in

Mesopotamia and are still being used all over the world.y It is not the dot.com dot.gone euphoria. y Correctly used warehouse receipt will continue to be an

important document to be used by traders and banks in the future.y The respective documents may be sent electronically in the

future.20

Electronic Warehouse Receipts..y The advantages of electronic receipts over their paper

counterparts include: reduction in manual-paper handling; transporting paper documents is eliminated along with the attendant

risks; information is moved faster; an audit trail of receipt activity is kept, and the electronic receipt system serves to back-up receipt data for the warehouse; chances of forgery are reduced.

y But the Electronic Warehouse Receipt should be legally

equivalent in every respect to a paper Warehouse Receipt21

THANK YOU

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