New Initiatives in credit flow to Farmers:

NCDEX Journey
Mr P.H.Ravikumar
MD & CEO, NCDEX Limited

Oct 8, 2005
 Present Financial Concerns
Financial Risks of Framers

Pre-Production Post-Production

Credit needs Insurance • Price risk

needs •Lack of proper
•Lack of timely
farm inputs •Weather leading to storage
crop failure •Credit flow
•Forward price
risk •Yield risk
•Credit flow
2
 Present Financial Concerns
Entities covering risk

Pre-Production Post-Production

Credit needs Insurance needs • NCDEX

•NCDEX •Insurance Company •NCMSL

•Banks • NCDEX –NCMSL •Banks

Price risk
•NCDEX
3
 Integrated role of Arathiya

„ Price
„ Buyback
„ Insurance
„ Liquidity
„ Flexible turn around time

4
 To replace Arathiyas, we need alternative ‘single-
window’ agencies performing with same
efficiency and turn around time; costs are
secondary

5
 Banks lend, but…

„ Banks charge farmers high interest rates

„ Price risk
„ Volumetric risk
„ Crop failure on account of natural factors as also
failure in supply of inputs
„ Other Risks run by farmers and lenders
„ Default Risk
„ Accidental death of farmers
„ Slower process & lower quantum lent

Can the arathiya’s role be entwined with that of the banks?

6
 Single window model: Pre-harvest
Small Small Large
Farmers Farmers Farmers

Aggregators
Future price ensured

Liquidity enhanced

Banks
Insurance Weather derivatives
/Crop Insurance
NCDEX
NCMSL Bank lending

7
 Single window model: Post-harvest

Small Large
Farmers Farmers

Sell forward

Banks
Storage facility
NCDEX
NCMSL
Assaying & grading

Commodity backed
bank finance (WR)

8
 Information Dissemination Matrix
Information on commodity price, warehouse status, weather & rainfall
etc.

Price Ticker Awareness Print Media Electronic

Program Media
„Rural Post offices „ Covering remote „ Regional „ TV
„Bank’s rural branches villages newspapers
„Railway platforms „ In vernaculars „ Training
„ Radio
„Co-operative offices „ Documentary materials
„Rural warehouses movies
„Panchayat offices
„Kissan Call centres

9
 Current Spot Market Structure
„ Spot Markets
„ Over 7000 ‘Mandis’
„ Opaque prices
„ Long Value Chain
„ Asymmetric market & price information
„ Bundled Processes
„ Price Information
„ Decision to buy/sell
„ Geographically influenced
„ Subjective Grading
„ Physical Delivery
„ Realisation of value

Currently both the buyer/seller to depend on intermediaries,

elongating the value chain
10
 NCDEX Approach in Spot Market
Unbundling the process
Price Information „ Informed decision on when & where
„ Information Dissemination to sell – at his place itself
„ Spot Prices

„ Electronic Trades „ Trade execution- at his place itself

Warehouse & Logistics „ Physical Delivery of produce –

„ Accredited warehouses
quality migration
„ Weather
„ Scientific Grading

„ Prompt commercial realization

„ Receipt of value
„ Low cost funding of stocks
„ Cashflow funding for intermediary
period, when sold forward

11
 Benefits of unbundling

„ Increase of holding power of small & marginal

farmers
„ Remove the price & market information asymmetry
„ Improves realization
„ Larger flow of credit to the sector through risk
mitigation
„ Shrinkage of value chain
„ Higher realization to the primary producer & lower cost
to the consumer

12
 NCDEX Pilots
„ Cotton grading project with CIRCOT
„ Grading cotton scientifically possible
„ Reduced subjectivity in grading of cotton
„ MOU with IARI
„ Objective gradation of cereals
„ Cotton pilot in AP & Gujarat
„ farmers to sell forward before harvest
„ Insurance player included to cover volumetric risk
„ Issue of aggregators
„ Farmers said they preferred options
„ Bank finance in MP with MPSWC
„ Banks to provide finance up to 85% of crop value

13
 Impact of NCDEX on farm incomes
Guar Seed Price (Rs/qtl) Raw Jute Price (Rs qtl)
FY0 FY0
FY02 3 FY04 FY05 FY06 FY02 3 FY04 FY05 FY06

1st Qtr 823 840 1217 1082 1491 1st Qtr 1146 1008 842 1056 1454
2nd Qtr 821 1575 847 1625 - 2nd Qtr 1042 857 823 1405 -
3rd Qtr 698 1434 978 1669 - 3rd Qtr 1042 827 784 1557 -
4th Qtr 758 1439 958 1534 - 4th Qtr 1167 804 794 1303 -

Castor Seed price (Rs/20 kgs)

FY02 FY03 FY04 FY05 FY06

304 304
1st Qtr 197 247 375
2nd Qtr 224 263 287 357 -
3rd Qtr 211 297 292 348 -
4th Qtr 211 363 300 305 -
Prices are those received by the farmers after adjusting for the taxes and other incidentals. The
Prices are from the following mandis: Bikaner, Calcutta and Ahmedabad. Numbers marked in
red pertain to Prices after trading was enabled on NCDEX.

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 One-stop shop in Non Urban India
Unit Function

Warehouse Hub of activities

Banking Franchised branches

Low cost ATMs, Agri-loans, financing,
aggregation
Crop Insurance Franchised branches, Crop risk
mitigation
Life Insurance Life risk mitigation

NCDEX (Price & Trading) Price risk mitigation & real time
knowledge
Grading Agencies Scientific grading, quality migration

Input suppliers (seed, fertilizers & Increase availability to farmers

machine tools)
Agri-extension services Facilitate other needs & services

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 Regulatory Facilitation
„ Options
„ Can be a substitute for MSP
„ Can be done for specific commodities without
amendment in FCRA (by notification under Section 27)
„ Indices & weather derivatives not tradable
„ Bank participation as aggregators
„ Can be done by notification under Section 6 (1)(o) of
Banking Regulation Act

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 Regulatory Facilitation
„ Institutional participation
„ Mutual funds: Modification in SEBI regulation
„ SEBI to issue a notification
„ FIIs: Notification by RBI
„ Policy to be put in place
„ Legal recognition needed for demat WR
„ Not under Depository Act presently
„ Not a negotiable instrument

17
 About NCDEX

18
 NCDEX – Current shareholders

NABARD NSE IFFCO CRISIL

15% 15% 12% 12%

ICICI Bank LIC Canara Bank PNB

15% 15% 8% 8%

-No private shareholding, only institutional shareholding

-NCDEX fully compliant with shareholding guidelines

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 Independent Board of Directors
Name Organisation Expertise in

Shri U. S. Awasthi MD, IFFCO Agriculture

Shri A.K. Shukla Chairman, LIC Insurance

Shri B.V. Bhargava Chairman, CRISIL Credit rating/finance

Shri S.H. Bhojani Partner, Amarchand Mangaldas & Co. Legal

Shri Dileep Choksi Sr. Partner, C.C Choksi & Co. Accounting

Shri D. S. Kolamkar Director, FMC Market Regulation

Smt Ranjana Kumar Chairperson, NABARD Rural finance/Banking

Shri Ravi Narain MD & CEO, NSE Exchange operation

Shri Lamon Rutten Chief - Finance & Energy, UNCTAD Finance & Energy

Shri Ravi Mohan MD, CRISIL Credit rating

Dr. Ajay Shah Consultant, Ministry of Finance Economics & Finance

Shri H.N. Sinor CEO & Secretary, IBA Banking & Finance

Shri P. H. Ravikumar MD, NCDEX Banking & Finance

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 Product Calendar Crude oil just
launched
Apr-Dec Jan – Aug
Dec 2003 2004 2005 In pipeline

Gold,
Gold, Silver,
Silver, Guar
Guar seed,
seed, Gur,
Gur, Rice,
Rice, Other
Other base
base
Crude Maize,
Maize, Raw
Raw
Crude Palm
Palm Jute
Jute Metals,
Metals,
silk,
silk, Cocoon,
Cocoon,
oil,
oil, RBD
RBD sacking,
sacking, Energy
Energy
Jeera,
Jeera, Chilli,
Chilli,
Palmolein,
Palmolein, Chana,
Chana, Steel,
Products,
Products,
Steel,
Cotton,
Cotton, Rubber,
Rubber, Cashew,
Cashew,
More
More
Mustard
Mustard Pepper,
Pepper, Cottonseed
Cottonseed Agricultural
Agricultural
seed,
seed, Wheat,
Wheat, oilcake,
oilcake, products
products
Mustard
Mustard oil
oil Castor
Castor Sesame
Sesame seed,
seed,
Soybean, seed, Tur, Arabica
Tur, Arabica
Soybean, seed, Guar
Guar
&
& Robusta
Robusta
Refined
Refined soy
soy gum,
gum, Raw
Raw Indices
Indices--
Coffee,
Coffee,
oil
oil jute,
jute, Urad,
Urad, Copper
Copper NCDEXAGRI
NCDEXAGRI
Yellow
Yellow cathode
cathode ,,
peas,
peas, mentha
mentha oil,
oil, FUTEXAGRI
FUTEXAGRI
Sugar,
Sugar, Crude
Crude oil
oil NCDEXRAIN
NCDEXRAIN
Turmeric,
Turmeric,
Soymeal
Soymeal

Each product is selected after in-depth research & market feedback

21
 Average daily volumes Rs cr
4500
4157
4000 3835

3500
Peak Volume for a single day
3040
3000
Rs. 7,197 cr on 22 Aug’05
2575
2500 2231
2015 2095
2000
1619
1444
1500 1231 1229

1000
691
500
21 55
0
Q 1 -2 0 0 4

Q 2 -2 0 0 4

Q 3 -2 0 0 4

O c t -N o v 0 4

D e c - '0 4

J a n '0 5

F e b '0 5

M a r '0 5

A p r '0 5

M a y '0 5

J u n e '0 5

J u l y '0 5

A u g '0 5

S e p '0 5
•Impressive growth of NCDEX with 85% volume contribution from agriculture
•Volumes in Steel & Copper picking up- daily average steel trade- 10,000 tonnes
•NCDEX has 60% of the market share in commodity trading

22
 Thank You

23
 Value Chain
Farmers
Farmers

Kaccha
Kaccha Farmers
Farmers
Pucca
Pucca Arathiya
Arathiya
Arathiya
Arathiya Co-operatives
Co-operatives

Mandis
Mandis

Co-operative
Co-operative
Pucca
Pucca Arathiya
Arathiya
Mills
Mills
Private
Private Mills
Mills

Consumer
Consumer Retailer
Retailer Wholeseller
Wholeseller
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