Unlocking Working Capital: An Overview of Supply Chain Finance

-Dayita Kanodia, Executive | finserv@vinodkothari.com

The best way to reduce your supply chain inventory is to sell it.” Dilbert.

Background

A supply chain is a complex network of organizations, people, activities, information, and resources involved in the creation and distribution of a product or service from its initial sourcing of raw materials to the delivery of the final product to the end customer. The supply chain of a business can vary significantly depending on the industry, size of the company, and the specific products or services it offers.

Financing the supply chain is a critical aspect of supply chain management and is essential for ensuring the smooth flow of goods and services. 

This article discusses the model of supply chain finance and how it helps in improving the health of the supply chain.

Read more

Embracing a Wider Scope for TReDS

Transfer of Factoring Units to come under the purview of TLE in lieu of the regulator’s move to enhance TReDs Platform

– Anita Baid, Vice President | finserv@vinodkothari.com

The concept of Trade Receivables Discounting System (TReDS) was introduced by RBI to enable discounting of invoices of MSME sellers against large corporates, including government departments and public sector undertakings, through an auction mechanism to ensure prompt realisation of trade receivables at competitive market rates. 

TReDS transactions fall under the umbrella of “factoring business.” Factoring is a financial practice where a company sells its trade receivables, or outstanding invoices, to a third party at a discount in exchange for immediate cash. TReDS platforms provide a digital infrastructure for facilitating such transactions, enabling efficient invoice discounting and promoting liquidity for MSMEs.(Our FAQs on TReDS and the India Factoring Report 2023 can be read here and here)

In a move to further strengthen the TReDS and promote smoother financial transactions, the RBI has announced significant enhancements to the TReDS guidelines. These enhancements are in line with the announcement made by RBI in the Statement on Developmental and Regulatory Policies dated February 8, 2023, to address certain challenges faced by financiers while bidding for low-rated buyers’ payables on TReDS platforms. (Our article on the same can be read here)

This article intends to discuss the RBI notification dated June 7, 2023 on Expanding the Scope of Trade Receivables Discounting System, introducing the said enhancements.

Read more

Ushering the new-age TReDS Platform

– Anirudh Grover, Executive | finserv@vinodkothari.com

Receivables or debtors though from the face of it is considered as a positive thing for businesses, however when you lift the tag of positivity one can assess the true color of trade receivables. This essentially means that despite it being classified as an asset it may not be helping the business when required. For instance, ABC Ltd has 1 lakh recorded as debtors in its financials however these debtors are of no substantial use unless it is converted into liquid forms of funds. This in essence is the reason why TReDS was introduced, RBI vide Guidelines for the Trade Discounting System (TReDS) opined that the scheme for setting up and operating the institutional mechanism for facilitating the financing of trade receivables of MSMEs from Corporate and other buyers, including Government Departments and Public Sector Undertakings (PSUs), through multiple financiers is known as TReDS.

Read more

India Factoring Report 2023

Register to our premium section to access the full Report

Sample Report

Loader Loading…
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Download as PDF [608.92 KB]

Team Finserv | finserv@vinodkothari.com

2022 in retrospect: Regulatory activity in the financial sector

– Vinod Kothari | finserv@vinodkothari.com

It has been a brisk year in terms of activity – a busy regulator kept  all regulated entities busier. This year marked the initiation of a new SBR framework for NBFCs – hence there was a lot of buzz in terms of understanding the new regulatory framework. The names of 16 Upper layer entities were declared by the RBI – consisting of 5 HFCs, 10 NBFC-ICCs, one CIC[1]. As is the design, UL entities are treated at par with banks in terms of regulatory intensity –hence, there is a LEF (large exposure framework), differential provisioning norms in case of  standard assets, CET-1 capital requirement, mandatory listing etc.

Read more

The Pious Intent of Promoting Factoring

Preserve of a select few?  

Over the last two years, the regulatory developments vis-à-vis factoring, and more specifically, ‘who can be a factor’ has been a to-and-fro ride. With widening of the scope of entities eligible for factoring to its effective roll back vide the Registration of Factors (Reserve Bank) Regulations, 2022 (‘Registration Regulations’), the factoring market found itself stuck in ambiguity arising because of the disparity between the Factoring Regulation (Amendment) Act, 2021 (‘Amendment Act’) and the Registration Regulations. Ironically enough, only days after the notification of Registration Regulations, the Economic Survey 2021-22 was released, which held a rather positive outlook as regards the factoring market, in view of the reliefs provided vide the Amendment Act.

Read more

Factors’ Registration Regulations: Going back to Square-one?

– Megha Mittal

mittal@vinodkothari.com

On 14th January, 2022, the Reserve Bank of India (‘RBI’) notified the Registration of Factors (Reserve Bank) Regulations, 2022[1] (‘Registration Regulations’) laying down the manner of granting Certificate of Registration (‘CoR’) to companies which propose to do factoring business. Applicable with immediate effect, this may essentially seem like an undoing of the Factoring Regulation (Amendment) Act, 2021. One of the several objectives of the said Amendment was to allay a doubt, arising from the existing language of the Factoring Act, that entities either had to be principally into factoring business, or not do factoring at all. The RBI’s Regulations almost lead to the very result – either an entity has a Certificate of Registration (COR) as a factor, or it does not do factoring at all.

Read more

A layered approach to NBFC Regulation:

A summary of the regulations can be viewed here. Our Youtube elaborating on the subject can be viewed here.

 

Factors impending factoring – why is factoring not picking up in India post enactment of the new Act ?

Nidhi Bothra and Shampita Das | finserv@vinodkothari.com

Loader Loading…
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Download as PDF [476.00 KB]