Traders breathe easy as prices up 35% since Jan

MUMBAI: Traders and processors who borrowed against warehouse receipts of paddy are breathing a sigh of relief with its price moving up by over 35% since January. These market players faced margin calls in January when prices of Pusa 1121 variety of paddy fell sharply to Rs 22,000 per tonne levels from Rs 30,000 in October 2008.

ICICI Bank general manager (agri, rural and micro banking) Kumar Ashish told ET that the bank had to issue margin calls in January since margins came down below 10% with a substantial fall in prices of Pusa 1121, which accounts for a major share of loans against paddy. A senior official from SBI, which has a sizeable exposure to such loans, said: ���Whenever there is more than 5% price fluctuation we ask the pledger to top up the margin���.

ICICI Bank funds loans against warehouse receipts after keeping a haircut or margin of 35%. ���Of Rs 400 crore loans against paddy, we sanctioned Rs 40 crore in October at price levels of Rs 30,000-31000. It was in these loans that we had a few cases where the margin of 35% came down to 6-7% and as a policy we had to issue margin calls,��� Mr Ashish said. ���However, much of the funding happened in November, December and January when prices were down between Rs 22,000 and Rs 27,000.���

Prices of Pusa 1121 dropped sharply after the government fixed a minimum export price for the commodity. Thus led to a huge surplus in the market as importers contracted to buy the commodity from countries such as Pakistan whose export price was lower than India. Apart from SBI and ICICI Bank, Axis Bank, IndusInd Bank and Development Credit Bank also offer warehouse receipt-based lending.

���A critical factor in warehouse receipt-based financing by banks is price information access on an ongoing basis in a credible manner to keep them marked to market,��� said Anil Choudhary, MD, NBHC, the collateral management arm of commodity bourse MCX.