Transfer of factoring receivables exempted from MHP 

Qasim Saif |

What is the exemption provided by the RBI?

  • The Reserve Bank of India (RBI) on 28th December, 2023 issued a circular amending the Master Direction on Transfer of Loan Exposures (MD-TLE) to exempt the Minimum Holding Period (MHP) requirement in case of transfer of receivables arising from factoring business.
  • The circular further prescribes eligibility for exemption, providing that:
    • The residual maturity of the receivables at the time of transfer should not exceed 90 days; and 
    • Proper credit appraisal of the drawee should have been conducted by the transferee as provided under clause 10 and 35 of MD-TLE
  • It shall further be noted that, factoring business, can only be undertaken by eligible regulated entities, hence the transferee’s in case of transfer of factoring receivables can be only be entities eligible for factoring business which are:
    • NBFC-Factors 
    • NBFC-ICC having specific licence for carrying out factoring business; and 
    • Entities identified under section 5 of the Factoring Regulation Act, 2011, viz. banks, and body corporates established under an Act of Parliament or State Legislature, or a Government Company
  • Before the specific amendment, a view could have been taken that factoring of receivables not being a loan, did not fall within the ambit of MD-TLE. The amendment has in a way clarified two things:
    • Transfer of factoring receivables shall be covered under the MD-TLE; 
    • The MHP requirement shall not be applicable in case the residual maturity of receivables is less than 90 days.
    • In case the residual maturity is more than 90 days, the MHP shall be applicable along with all other provisions of the MD-TLE

Intent behind exemption from Minimum Holding Period requirement

  • In accordance with MD-TLE any transfer of economic interest in a loan account/pool by regulated entities could only be undertaken after a prescribed period of 3 months in case of loans with tenure less than 2 years and 6 months in case of other loans has elapsed. The intent being to restrict REs from originating loans with the sole intent to transfer the same.
  • The primary intent behind this amendment is to foster and enhance the secondary market operations associated with receivables acquired through ‘factoring business’. By exempting the MHP requirement for eligible transferors, RBI aims to encourage greater liquidity within the factoring industry.

Anticipated impact of the amendment

  • Promoting an active secondary market would attract more participants, specifically the secondary market would help REs to work on their core competencies, such as eligible NBFCs may be able to originate assets in their specific niche which can be then transferred to banks or other large NBFCss for utilising their low-cost pool of funds.
  • Factoring business in India has been an underperformer, removal of such bottlenecks shall help REs optimising their business and in turn facilitating easier working capital finance for MSMEs.


  • To provide a little thrust to lagging factoring business in India, RBI has exempted transfer of factoring receivables from the requirement of MHP  under the MD-TLE 
  • The said move can assist in larger participation and increased liquidity in the factoring industry.
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