Structured Finance through Collateral Management

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Structured Finance through Collateral Management

• P V Ananthakrishnan
• Executive Vice President
• Head, Commodity Business

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Structured Finance

• An art of transferring the risks from parties
  less able to bear them to those more equipped to
  bear them.
• Move the risk away from the party which is being
  financed
• Conversion of Wealth to Capital
• Plantations, Oil etc

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Why Structured Finance

• Traditional Bank Finance
• Primary Risk on Borrower
• Financials of borrower Key element
• Other Collateral Secondary
• Borrower cant optimize their working capital
  requirements
• High interest due to higher risk
• Financing to new Companies

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Structured Commodity Finance

• Primary risk on underlying commodity
• Storage/Control of commodity
• With neutral party
• Borrower Profile/Financials
• Secondary comfort

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Structured Commodity FinanceFacilitators

• Warehousing Infrastructure
• Logistics Management
• Quality Assaying
• Insurance
• Exit Options

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Collateral Management

• Essential component of effective credit risk
  management
• One of the method of securing the loan with
  physical commodity
• Process comprises of Bank, Borrower Collateral
  Manager
• Collateral Manager must enjoy fiduciary trust of
  Borrower Bank

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Warehouse Receipt Finance
Disbursement of loan
Bank
Borrower
Tripartite agreement
Collateral Manager
Procurement
Lien marking
Control
Warehouse
Acceptability Of Warehouse
Commodity
Quality Testing Quantity Checking Logistics
Acceptance for storage Issue of receipt Regular
monitoring
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Service Provider
Warehouse Receipt With lien marking
Bank
Disbursement thru SP
Warehouse
Service Provider
Deposit of Commodities
Mobilizes Business
Control Monitor
Logistics Mgnt
Farmer
Commodity
Collateral Manager
Quality Check
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Import Trade
Monitoring supervision
Commodity As per LC Terms
Collateral Manager
Overseas Supplier
Purchase Contract
LC facility
Clearance logistics
Shipment
Pledge To Bank
Warehouse
Indian Buyer
Bank
Tripartite Agreement
Pledge Release
Repayment
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Export Trade
Shipment
Overseas Buyer
Collateral Manager
Logistics
Commodity As per LC Terms
Sale Contract
LC facility
Bank
Tripartite Agreement
Release of pledge
Indian Supplier
Warehouse
Pledge Of commodity
Repayment through LC payments
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Collateral Management

• Collateral Management enables the lenders to
  set up operational risk parameters while lending
  and also to control and monitor these parameters

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Our Experience

• Structured Financing
• Bulk Financing
• Service Provider
• About 50 Commodities
• Over 500 locations

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Challenges

• Financial Soundness of Collateral Manager
• Integrated Solutions
• Quality Storage Capacity
• Comprehensive Insurance Cover
• Uniform laws covering multiple acts / licensing
  requirements
• Vibrant Futures Market

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Thanks