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Structured Finance through Collateral Management

Structured Finance through Collateral Management. P V Ananthakrishnan Executive Vice President & Head, Commodity Business. Structured Finance. An art of transferring the risks from parties less able to bear them to those more equipped to bear them.

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Structured Finance through Collateral Management

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  1. Structured Finance through Collateral Management P V Ananthakrishnan Executive Vice President & Head, Commodity Business

  2. 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

  3. Why Structured Finance • Traditional Bank Finance • Primary Risk on Borrower • Financials of borrower – Key element • Other Collateral – Secondary • Borrower can’t optimize their working capital requirements • High interest due to higher risk • Financing to new Companies

  4. Structured Commodity Finance • Primary risk on underlying commodity • Storage/Control of commodity • With neutral party • Borrower Profile/Financials • Secondary comfort

  5. Structured Commodity FinanceFacilitators… • Warehousing Infrastructure • Logistics Management • Quality Assaying • Insurance • Exit Options

  6. 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

  7. Warehouse Receipt Finance Disbursement of loan Borrower Bank 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

  8. 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

  9. 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

  10. Export Trade Shipment Overseas Buyer Collateral Manager Logistics Commodity As per LC Terms Sale Contract LC facility Tripartite Agreement Bank Release of pledge Indian Supplier Warehouse Pledge Of commodity Repayment through LC payments

  11. Collateral Management “Collateral Management enables the lenders to set up operational risk parameters while lending and also to control and monitor these parameters”

  12. Our Experience • Structured Financing • Bulk Financing • Service Provider • About 50 Commodities • Over 500 locations

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

  14. Thanks

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