SENSEX NIFTY
Aug 07, 2013, 11.12 PM IST | Source: CNBC-TV18

Fall in value of raw stock may trip NSEL settlement

CNBC-TV18’s Sajeet Manghat and Payaswini Upadhyaya report that the fall in value of raw stock at the warehouses is one of the many hurdles that may trip the NSEL settlement.

Sajeet Manghat

Chief of Bureau, CNBC-TV18

The government has made the Forward Markets Commission(FMC) the regulator for all spot exchanges and has given it the mandate to make National Spot Exchange Ltd 's (NSEL) troubles go away. But the cleanup may not be so easy. Though NSEL has finally disclosed its outstanding positions, the street is taking the numbers with more than a pinch of salt, report CNBC-TV18's Sajeet Manghat and Payaswini Upadhyaya.

With Jignesh Shah's NSEL is running the risk of defaulting on its settlement obligations, the consumer affairs ministry has swung into action. It has named the Forward Markets Commission as the designated regulator for not just NSEL, but for all spot exchanges set up under the exemption under Section 7 of the FCRA. And with the FMC's first order of business being to study NSEL's settlement plan, the government hopes the matter will be put to rest soon.

Pankaj Agarwal, secretary, consumer affairs, government of India says, "The exchange should redress the grievances of the brokers, the lenders and all those who conducted business on the NSEL platform under the supervision and guidance of FMC."

But the FMC has its work cut out. Disclosures from NSEL show that as of the July 31, while it has stock worth Rs 6,052 crore in its warehouses, the total outstanding obligations amount to Rs 5,544 crore.  The NSEL’s biggest exposures are: a) over Rs 1,400 crore in sugar, covered by stock worth over Rs 1,600 crore; b) over Rs 1,400 crore in paddy covered by stock worth over Rs 1,500 crore; c) Rs 730 crore in raw wool, covered by stock worth nearly Rs 770 crore.

But there's a problem: CNBC-TV18 has learnt that this stock, at current market value, has depreciated by nearly Rs 1,000 crore . The value of the paddy is down Rs 750 crore, the value of raw wool is down Rs 100 crore and the value of sugar is down Rs 50 crore.

This means the warehouse stock is not enough to cover NSEL's obligations. The other problem has risen from the list of borrowers NSEL has disclosed and the amount of stock these borrowers have in their warehouses.

NSEL has not disclosed who has certified this stock. Questions are also being raised on the financial viability of these borrowers since their outstandings are multiples of their annual turnover.

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