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Factoring Business: Business Threshold lowered

 

As a part of its regulatory reform of the NBFC sector[1], the RBI on 10th Nov 2014[2] announced lowering of the business threshold for factoring companies.

Currently, a factoring company is required to ensure assets in factoring business, as also income from out of factoring activities, to be 75% of its total assets/income respectively.

The RBI announcement of 10th November lowers both the thresholds to 50 per cent.

Factoring companies are required to be registered with the RBI under the Factoring Regulation law and factoring directions of the RBI[3]. However, despite admitted efforts on the part of the regulators to promote factoring, factoring has not come up in India to the extent expected[4].

According to the author of this Note, the problem that factoring companies face, besides the existing high threshold of business thereby limiting flexibility, is the  strange position created by RBI FAQs on factoring, which suggest that an NBFC cannot do any assignment of receivables, unless it is a registered factoring company. The intent of the factoring regulatory regime was admittedly to promote factoring and not curb it. If a regulated NBFC carries factoring as a non-principal business, there cannot be a policy objection to it. It does not seem that the present notification of the RBI resolves this problem.

 

 


[4] See Factors Impeding Factoring, article by Nidhi Bothra and Shampita Das: https://www.india-financing.com/Factors_impending_factoring_why_is_factoring_not_picking_up_in_India_post_enactment_of_the_new_act.pdf

 

To read our articles on NBFC: Click here

To read our articles on Factoring: Click here

 

 
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