Reserve Bank of India (RBI) on Wednesday proposed to expand the scope of Trade receivables discounting system (TReDS) in a bid to improve the cashflow of the country’s micro, small and medium enterprises.
The guidelines on Trade Receivables Discounting System (TReDS) were issued in December 2014 with the objective of facilitating the financing of trade receivables of MSMEs.
Subsequently, three entities started operating TReDS platforms and two more entities have been granted in-principle authorisation. These entities process about Rs 60,000 crore worth of transactions annually.
RBI today proposed that the Insurance facility will now be permitted on TReDS. This will encourage financing / discounting of payables of buyers irrespective of their credit ratings. Accordingly, insurance companies will be permitted to participate as a “fourth participant” on TReDS, apart from the MSME sellers, buyers and financiers.
All entities / institutions eligible to undertake factoring business under the Factoring Regulation Act will be permitted to participate as financiers in TReDS.
Secondary market operations will now be enabled on TReDS platforms. This would allow financiers to offload their existing portfolio to other financiers within the same TReDS platform, if required.