Physical warehouse receipts may be banned by March

The Warehousing Development and Regulatory Authority (WDRA) is planning to ban physical warehouse receipts by March to nudge registered warehouses to issue only electronic receipts.

At present, all warehouses issue both paper and electronic warehouse receipts, of which some are negotiable. Some electronic warehouse receipts issued by warehouses registered with the WDRA are made tradable among members for smooth transfer of ownership of the underlying commodities without their physical movement. This saves cost for buyers of the underlying commodities, resulting in lower prices of the traded goods.

Electronic warehouse receipts will be transferred through repositories. The NCDEX repository has issued 30 such receipts while the repository set up by the CSDL is yet to become active on this score.

Issuing of electronic negotiable warehouse receipts (eNWRs) is yet to take off as most collateral managers have set up their own nonbanking finance companies (NBFCs) for easy lending to farmers and stockists for storing goods in their warehouses. These collateral managers handle procurement, quality inspection, storage and stock management on behalf of their clients through their own paper based receipts. Making the issuance of eNWRs mandatory will bar collateral managers from issuing their own receipts. Only repositories will be able to issue warehouse receipts on recommendations from collateral managers.

“We want to create awareness among our members about eNWRs. We have discussed in our board meeting issues for making eNWRs compulsory. We will shortly be making it mandatory for our members to issue eNWRs,” said P Srinivas, member, WDRA.

“This will be done by the end of March,” an official added.

According to existing regulations, all warehouses registered with the WDRA must issue only eNWRs. But they have been issuing paper-based receipts as well in order to source funds from financial institutions.

“The WDRA should focus on bringing more warehouses under it before making eNWRs mandatory,” said Sanjay Kaul, managing director, National Collateral Management Services, one of India’s largest collateral managers. The decision of the WDRA is likely to make the collateral business transparent with easy monitoring of warehouse receipts and storage of underlying commodities. But the majority of warehouses continue to remain unregistered with the WDRA.

Of 55,000 warehouses in India, less than 1,000 have registered with the WDRA, which came into existence seven years ago. While half the existing warehouses are captive, like those of Food Corporation of India, others, including private ones, see no significant addition to their business because of a WDRA registration.