Archive : JAN-DEC 2010

ICICI Lombard to offer cover to Haryana Farmers Insurance to Cover Risks Due To High Temperature As Well As Excess Rainfall

The Haryana government has mandated ICICI Lombard GIC to provide weather-based crop insurance to the state farmers. The first private sector general insurance company to provide weather-based crop insurance of wheat for farmers in Haryana would cover risk due to high temperature and excess rainfall.

At a premium amount of Rs 248 per acre, the farmer would get coverage up to Rs 15,000 per acre. The scheme offers opportunity to cover losses caused by adverse weather conditions. This weather-based insurance of wheat has been taken up as a pilot project in Ambala II block of Ambala district. The Haryana government has made it mandatory for the farmers who have taken loans to take this cover.

"Wheat is the main Rabi crop of Haryana and it has not been brought under the umbrella of any crop insurance program so far in the state. We consider it to be our privilege to have been chosen to insure the crop against adverse weather conditions. For the convenience of the farmers, special care has been taken to incorporate a simple and transparent claim process” says ICICI Lombard GIC financial inclusion solutions group head Dilip Jashnani.

The claim settlement is a hassle free process as the beneficiary is not required to file a claim for loss to receive a payout and instead, the beneficiary would be compensated at the end of the crop season for any deviations from the normal conditions on the basis of the certified data collected from independent third party bodies such as Indian Metrological Department (IMd) and National Collateral Management Services (NCMSL).

ICICI Lombard has extended weather insurance benefits to more than 5 lakh farmers across India and insured 14 lakh acres. In the loanee segment of farmers, particularly large area of land is covered under this scheme in six states of Karnataka, Rajasthan, Bihar, Tamil Nadu, Madhya Pradesh and Haryana. Under this scheme, of the total premium of Rs. 1,158 per acre of land, government (Central Government and Govt of Haryana) pays subsidy of Rs. 910 and the farmer has to pay only Rs. 248. At a premium amount as low as Rs. 248 per acre, the farmer gets coverage of up to Rs. 15,000 per acre.

(Source: Economic Times, Mumbai, March 18, 2010)

Better Ways to Fill up and empty stomach

International Finance Corporation (IFC), the private investment arm of World Bank, is looking to invest Rs. 35 crore in equity and Rs. 60 crore in debt to part-fund an expansion programme of National Collateral Management Services (NCMSL), a Mumbai-based provider of integrated supply chain solutions as well as risk management services to producers, traders and end users.

NCML is in the process of construction of warehouses in different states that include Haryana, Rajasthan, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, Karnataka, Kerala, Gujarat, Tamil Nadu and Maharashtra. These warehouses would primarily be located in rural and semi – urban areas.

Due to nature of lease contracts, the company is exposed to the risks of lease price volatility as well as non – renewal of the contracts and believes that the only way to improve over all services levels (across procurement, warehousing and collateral management), operating efficiencies and long term profitability in this business is by moving from 100 percent lease – based model to a more balanced mix of owned and leased warehouses.

NCML is planning to implement the expansion in two phases over a 3-4 year period. As per the disclosure made by IFC, the estimated project cost of this expansion is about 420 crore ($90 million).

(Source: : Financial Chronicle, Chennai, Mumbai, May 28, 2010)

Serious players keep away from commodity futures mkt as it lacks clear policy roadmap

COMMODITY markets in India have become synony¬mous with the exchange traded commodities on futures market for the last five years. However, after initial enthusiasm, the large players are no more serious about the roles of these exchanges; policy makers view this market with a doubtful look however perfect theoretical correctness it may have in price discovery.

Traders in commodity markets have benefitted from the opacity in price information from time immemorial. The transparency of prices on screen-based trading has not benefitted physical small-time traders and commission agents (aratiyas) and rather the most vociferous op¬ponents are these interest groups. The indirect benefits of price transparency have percolated to the farmer community compressing the margin of these small-time traders. I recall, in a very comical incident, when the government was contemplating the ban on sugar con¬tracts, one of these small-time traders was on a live show he was giving price execution orders on futures contracts contrary to the stance taken on the TV show. Sheepishly he told me ‘desh ke sath sath, apna be khayal rakhna parta hai” (along with interest of the nation, I have to take care of myself) Politicians have also benefitted by misrepresenting the reasons for the price rise and blam¬ing the futures market for it. Incidentally, wheat futures were banned at a time when the government had decided to import wheat and there was a price spiral due to low perceived production. Even more surprising was the timing of the lifting of the ban on wheat. No logic. no reason.

Does that mean that one "discovers price" only when the agricultural commodity prices are going down? Unfortunately, the regulatory mechanism, has often buckled under political pressures.

The regulators have often tried to control the market rather than trying to create a robust operating and governance mechanism for market growth. The focus should have been first to find out whether there is adequate representative participation from physical players rather than questioning the exchanges why prices have gone up or down and embarking on controlling prices through open interest and margin controls regimes. Secondly, to do a nationwide cam¬paign to create an environment for broadbased participation rather than organising 'aware¬ness programmes' in pockets.

While futures exchanges in India have seen a fantastic volumetric growth in monetary terms, the commodity futures sector lacks a clear policy roadmap. The lack of consistent policy, sudden ban on contracts, lack of active participation by commodity user groups and lack of legislative teeth for the regulator will make it a cesspool of financial market gamblers and keep the serious organised players away from this market. This is a point in case for not only for agricultural commodities but also for non-ferrous metals and energy contracts that are widely traded on commodity exchanges in India.

(Source: Economic Times ; Mumbai , July 12, 2010)

NCMSL ties up with Yes Bank to provide collateral management & warehousing services

National Collateral Management Services Limited (NCMSL) has tied up with Yes Bank to provide collateral management and warehousing services. NCML has been a pioneer in providing collateral management services to banks. These services have assisted industries, traders and farmers in financing their capital requirements at all stages of the supply chain, ranging from pre-harvesting to the marketing and export stages. NCML also offers premium services for working capital financing in commodity-based industries, especially agro-based industries.

Sanjay Kaul, MD & CEO of NCML and Rana Kapoor, MD and CEO of Yes Bank signed the MoU. In providing collateral management services, NCML works in partnership with 16 leading banks and in more than 200 locations across the country.

Elaborating on this tie-up, NCML’s MD & CEO, Sanjay Kaul said,”We hope that this arrangement will result in substantial new business across India. This new arrangement with Yes Bank will provide an opportunity to field functionaries to extend finance against warehouse receipts. Our warehouses spread across the country issue credible and reliable warehouse receipts.”

Commenting on the tie-up, Rana Kapoor, MD and CEO of Yes Bank said that this tie-up arrangement will focus on the producers at the start of the supply chain. ”The farmers will benefit from this scheme as it will provide them with post-harvest credit facilities so that they do not have to resort to distress selling of their produce.”

NCML is a national level institution, promoted by IFFCO, Canara Bank, Corporation Bank, Punjab National Bank, HDFC Bank, Karur Vysya Bank, YES Bank, NCDEX and HAFED, to provide risk management solutions in the areas of commodity and inventories.