Transcript Operations Risk Management

Global Grain Food and Feed 2015
&
Sugar Summit Asia 2015
Anil K Choudhary
Managing Director & CEO
National Bulk Handling Corporation Pvt Ltd.
20th June 2015
www.nbhcindia.com
Agriculture Sector
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Average annual growth rate has come down in last 2 quarters
An average growth rate 4% required to achieve and sustain 8%-9%+ growth rate of
GDP

Share in GDP reduced to less than 14 % from 60%+ during early years of the Plan
period
Sustains over 58% of population directly and over 75% indirectly
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Substantial portion of surplus subject to distress sale
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Price realized on average by farmers just about 35 % of what consumers pays
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Indian farmer characterized by small holdings, tenant status
• Large deficit in storage facilities
Regulatory / investment
environment…
Focus could give impetus
to GDP and also overall
economic prosperity
Opportunities for efficient
supply chain and value
added services
Investment opportunities
in post harvest infrastructure
• Increasing pressure on the existing infrastructure

Food Security , MSP and PDS planks for Government focus on Agriculture
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Reforms in the MSP and PDS will further augment interest in the sector
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Opportunities for efficient
supply chain and value added
services
Agriculture Sector
Achievements and challenges
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Food deficit to food sufficient to food surplus ( in select commodities )
Green Revolution now extending to other commodities and geographies
Leading exporter of rice, cotton , guar gum , castor seed ,etc .
Food security still a major
challenge
Declining per capita
availability of food grain
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Largest producer of pulses , jute , milk
2nd largest of fruits and vegetables and even exceeding food production
2nd largest producer of food grains
2nd largest producer of sugar cane, ground nut , cotton
Amongst the leading producers of spices and plantation crops
Large wastage , loss and low
processing
Low productivity
Depleting water table
& more than half of the cultivated
area substantially monsoon
dependent
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Largest arable area
Largest network of irrigation systems
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Round the year cropping patterns – Kharif and Rabi
Ability to exploit all seasons across varied climate zones
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Public investment in post harvest infrastructure as % of agriculture GDP, decreasing
Private sector investment across allied industries gradually increasing
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Inadequate & inefficient linkages
between production and
consumption
Subject to Policy initiatives
Food Grain Management – an Indian perspective
FCI Objectives
Outcome
- Providing effective price support to farmers
- Distributing foodgrains all over the country for
PDS
- Maintaining satisfactory level of operational and
buffer stocks of food grains to ensure National
Food Security
- For Rice and Wheat, only 5.8% of the farmers
sold at MSP; For other commodities under MSP,
the situation is far worse; 23 commodities in total;
Pulses and Oilseeds need special attention
- 58% of the subsidized grains do not reach BPL
families. Leakages in the range of 47%; As high as
70-90% in some states
- For the last 3 years on an average excessive
stocks of 40 MMT were kept in public stocks
without serving much purpose. Cost of stocks +
carry is estimated at Rs 100000 crore; This was
coupled up with high food inflation.
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Warehousing in India
Challenges in Food Grain Management
Infrastructure
With the exception of recent modern projects, storage facilities available in India lack mechanization,
quality control facilities and are structurally unfit for further improvisation
Absence of basic standardization and certification infrastructure
Process & Technology
Lack of Technology usage at each step of the supply chain
High storage and transit losses
Manpower
Low Awareness among the Warehouse Owners
Lack of Trained Manpower on ground
Financial Unattractiveness
Unviability for Private Warehouse Operators to invest for both Dry and Cold Chain
Cold Infrastructure plagued by Lack of Road Infra, Human Capital, Integrated Cold Chain, Uneven
distribution of Cold Chain, High Capital Investment, Erratic Power Supply
Warehousing Sector needs a big fillip in order to contribute to the Food Security
& Farmer Upliftment in India
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Efforts required in Food Grain Storage Management
A Grain Saved is Grain Produced

Appropriate and Better Supply Chain Management Measures /
Technology
• Design appropriate, need-based food management systems
• Different approach towards storage practices
o Use of silos/silo bags for bulk storages and appropriate
mechanization – being undertaken
o Storage practices involving better packing material,
stock handling practices and stock health examination
schedules
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Quality Assaying labs for assaying, certification, quality
surveillance of food grains in storage and TQM implementation
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IT systems to integrate information and enable better real time
stock management
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Use of warehouse receipt system for procurement activity to
reduce multi-level handling and losses
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Use of novel and eco-friendly pest management practices
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Creating storage infrastructure in collaboration with private sector
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Post Harvest Credit – Still a long way to go
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Warehouse Receipt Funding…
Secure & Profitable Credit by Banks
• A more secure way to fund on commodities
• Better control and convenience in management of collateral
• Enhanced credit delivery and recovery mechanisms
• Efficient / adept management of contingency situations
• Marketable instrument for developing Indian economy
• Easier exit being a pledgee , thus much lower chances of NPA
• Short term and self liquidating
• Effectively addresses the issue of asset – liability mismatch
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Advent of Collateral Management…
• Practiced in developed
economies for structured
Trade Finance
Inspiration
Intent
• Possible vehicle for Post
Harvest Credit through WRF
• CM through an independent
3rd party with required
guarantees that had kept
banks away from Post Harvest
Funding
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• Became more of Stock
Management
• Penetration still quite low
Result
Risks and Mitigation…
Comprehensive Collateral Management
The Collateral Manager alongside managing various risks also safeguards the
enforceability of lenders’ interest in collateralized assets
Operations Risk
Management
Market Risk
Management
Collateral
Management
Credit Risk
Management
Safeguarding
the
Enforceability
Operations Standards,
Audits and
Surveillance
Operational processes & systems
Regular Audits and status reports
MIS System
Realistic assessment of value
Regular Price Feed
Network of Buyers
Credit File
Record Keeping
Revaluation/Reappraisal against
credit exposure
Safe Custody
of
Collateral
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Legal agreements
Tagging / marking
Maturity Management
Renewal of security interest
Periodical check of inventory
Integrated Collateral Management… Requirements
Collateral Management Service
During Loan tenure
Pre-Disbursement
Pre disbursement
audits & checks of
storage facility
Commodity
Prices and
accurate
valuation
Commodity and facility
recognition
Borrower
identification and
KYC
Legal Agreements
and control of
facility
Commodity Testing
and Certification
Loan Closure
Storage /
Warehouse
Receipts
Continuous security
and facility
management
Regular surveillance and audit checks
Risk Free Credit
portfolio
VALUE PROTECTION
End-to-end process management
VALUE APPRAISAL
Accurate Assessment
• Widespread presence
• Detailed processes & demarcation between different function necessary to fulfill responsibilities of a CM
• The requisite infrastructure in-house to give quality & quantity guarantee
• Infrastructure – human & physical – with adequate reach
• Well capitalized & sound financials
• Independent audit & vigilance processes
• Robust IT systems for real time management of commodities at geographically diverse locations
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VALUE REALIZATION
Successful closure
Typical Flow
Warehouse Receipt Financing
1
Quality Assaying of
Commodity
3
Third Party/Own
Warehouse
Deposit Commodity
2
WH Receipt
Collateral Manager
4
Pledging WH receipt
5
Bank
Sugar Factory/
Farmer/Trader
Financing
6
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Challenges for a CM
• Unreliable performance of warehousemen - fraud &
Warehouse
Facilities
Operational issues
mismanagement
• Inefficient storage practice
• Pre-stored commodities
• Lack of trained man-power
• Collusion with the borrower
• Control and oversight a challenge due to
geographical spread
Other issues
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•
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Ineffective remedial recourse
Settlement of fidelity insurance claims
Remuneration not commensurate to the risk
Double funding of stocks
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Road map
•
Industry awareness, recognition, benchmarking
 Deepening the industry and alignment of players
 Encouraging professional Collateral Managers
 Accreditation of Collateral managers on well-defined benchmarks
 Proliferation of best practices
•
Commensurate rewards
 Ensure commercials awarded take cognizance of inherent risks
 Banks to develop bench marks for enlisting CM agencies.
 Remuneration to be linked to the risks mitigated
•
Downstream risk awareness and recognition
 Infidel acts being a major challenge, a proper Insurance product and timely
resolution of claims would help the Industry grow significantly
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Sum Up Way Forward – Agri Storage & Financing
Infrastructure, Technology & Policy development
INFRASTRUCTURE
POLICIES AND PARTNERSHIPS
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Accelerated efforts to create new infrastructure
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Upgrading of existing infrastructure
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Creation of ecosystems rather than standalone
facilities
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Expediting the impending tax and regulatory
measures to create investment attractiveness
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Keeping conducive policies environment for private
sector investments to create remunerative business
participation
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WDRA to be sole Regulatory Authority
TECHNOLOGY
OPERATIONS AND OTHERS
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Adopting technology to streamline processes and
enhance operational efficiency
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Research and Development for newer technologies
for commodity management & care
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Adopting technology for transparency and price
dissemination
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Creating pan-industry standards
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Product and operational innovation to reach wider
base
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Awareness and promotion of WRF
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National Bulk Handling Corporation Pvt. Ltd.
(NBHC)
INDIA’S LEADING INTEGRATED AGRI-COMMODITY & COLLATERAL MANAGEMENT COMPANY
Facilitating complete operational and economic efficiencies in supply chain. Adding value to commodities.
NBHC – Quick Facts:
Commodities Managed
under CM
29+ mn MT
WRF Funding
Number of commodities
USD 7.8+
billion
160+
QA Labs
40 + 200
Mobile
Banks
46
Commodity
Fumigated
37 MMT
Human Resources
2,800#+
# also includes contractual staff
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The NBHC Advantage
Large Foot Print –
23 States, 730 + locations 1600
Warehouses
Superlative QA
Standards –
NABL 17025:2005; GAFTA F;
Expertise in 160+
commodities
Efficient Operations
-Extensive and unique
integration of Information
Technology in everyday
operations
Largest Agri
Commodity
Fumigators
Ability to Manage
Scale3.35 MMT Storage handled
Quality Risk
ManagementRegular quality evaluation
during storage to assess
status including infestation
Real-time
Management of produce
from time of arrival at
warehouse to onward
dispatch;
Procuremnt & Sales
Able to provide linkage to
Markets between buyers
and suppliers
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Quality Focus –
First in Industry to be ISO
9001:2008, ISO 22000: 2005
accredited
Stock Guarantee–
Large Network of quality
control labs to ensure
continuous monitoring and
check on health of stock
Price Risk
Management –
Price Poolong Reports &
Desk to monitor Market
Trends & Macro Issues
Operations Risk
Management
Extensive on ground
operations team & Well laid
out SOPs
THANK YOU
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