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.
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