OUR BUREAUS

Mumbai, May 11 An RBI working group has recommended that banks be allowed to participate in agriculture derivatives trading on proprietary basis within certain prudential limits. It has also suggested permitting them to offer futures-based products to farmers.
If the recommendation is accepted, it will provide banks a facility to hedge against the price fluctuation of the banking sector's agriculture sector credit portfolio, which is about 18% of the total bank credit of about Rs 11 lakh crore. Banks' entry into the commodities futures market will provide a massive boost to the nascent market and will also bring about a much-needed prudent risk management system.
It will also mitigate the risk arising due to price volatility in agricultural
commodities, which causes severe loss to the farmer who may be unable to repay his dues to the bank.
An RBI working group on Warehouse Receipts and Commodity Futures has also recommended that banks may be permitted to offer futures-based products to farmers, to enable them hedge their price risk. The group has also recommended creation of an umbrella structure to act as a closed user group whose membership may be extended to all players in the commodity market.