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8/3/2019 Pledge Finance
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Prof. Rushen Chahal
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PLEDGE
What it is ?
Bailment of goods as a security for
payment of a debt or performance of apromise.
Bailment or transfer of possession
Only possession but not the ownership
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RESPONSIBILITIES OF PLEDGEE
Must exercise reasonable care.
When pledged goods are stolen or robbed
-- bank can not be held responsible whenexercised reasonable care.
For loss or deterioration -- responsible.
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RIGHTS OF PLEDGEE
Right to retain
Right to sellby giving reasonable notice. Sale need not be public.it can be private
also
Can file a suit.
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ESSENTIALS OF PLEDGE
FINANCINGGoods / Commodities be stored under bankslock & key or in warehouses against warehousereceipts or with clearing agents
Merchandise register & drawing power registerto be maintained
Nature of goods, value, perishability, storagefacility to be verified
Periodic inspectionProper insurance
Display of banks signboard
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But the needs of the following
are not met
Small farmer storing in Private Warehouse
Private RG owner + Aggregator
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Indian Agricultural Scenario- A perspectiveIndian Agricultural Scenario- A perspective
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WHY THEY NEED PLEDGE FINANCE?
To Prevent distress sale by producers.
To Promote cleaning, drying and gradingat farm gate.
To Promote proper storage facilities.
To Facilitate better price realization byfarmers.
To Avoid glut conditions in market.
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HOW THIS BECAME A BURNING
ISSUE? Due to Gramin Bhandaran Yojana, Cold storagescheme, AMI and the Creation of Huge storagecapacities in the private sector ( >150 lakh MT)&
GOIs mission
To prevent distress sale of food grains and otheragricultural produce immediately after harvest. To reduce quantitative and qualitative losses due to storing
of food grains in substandard storage. To reduce pressure on transport system in the post harvest
periods of peak supply.
To help the farmers in getting pledge loans against theirstored produce to meet immediate financial requirement.
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Dilemma of the Conventional Banker
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CONTMEPORARY TOOLS FOR
APPRAISAL
Access to Time series data on variouscommodities
Sourcing information from NCDEX,MCX
Keeping in touch with NCMSL andaccessing their services
Studying market trends & mark to
market on regular basisElectronic back bone
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Collateral Management
National Collateral Management Services Limited
promoted by NCDEX Accreditation of Warehouses - parameter based
Robust grading by reputed agencies
Dematerialization of Warehouse receipts
Bank lending against warehouse receipts Farmers deposit goods in accredited warehouses
Goods assayed and graded
Finance provided to farmers by banks againstwarehouse receipt
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RESULT
Smart work by NEXGEN
Customer happy with Pledge Finance