Indian government looks to set up credit guarantee fund for warehouses

In an attempt to increase formal sector participation, the Indian government is in conversation with experts to set up a credit guarantee scheme for construction of warehouses in the country. The fund will model itself after the credit guarantee fund for small and medium enterprises, that is already well established. In the past three years, the government has taken several steps to boost the sector, including sanctioning over 1,500 warehouses under various schemes. With this fund, they hope to ease capital flow while reducing cost of capital for construction.

The proposed fund will be developed under the Warehousing Development and Regulatory Authority (WDRA). Their goal will be to work with banks and non-banking institutions to offer credit facilities only to entities with NWRs or e-NWRs, thereby ensuring more people line up to register. The WDRA has faced some criticism from industry insiders regarding its high dynamic security deposit (DSD) which is presently at 3% of the maximum value of negotiable and non-negotiable warehouse receipts. Insiders believe a reduction in 50-100 basis points might encourage more cooperation amongst stakeholders as the DSD has a direct bearing on the cost of capital.

A recent report published on warehousing in India by CREADI & Annarock predicts the need for creation of approximately 223 million square feet of Grade A warehousing to meet growing demand. Experts believe that, in the coming three years, equity investments to the tune of USD 3.8 billion would be needed to support this scale of development. The sector is said to currently have over USD 900 million in the form of ‘dry powder’ funding from existing commitments signifying a latent investment opportunity of almost USD 2.8 billion. Warehousing has immerged as a preferred asset class largely due to its short construction periods and lower risk when compared to other real estate asset classes.

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Indian government looks to set up credit guarantee fund for warehouses

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