The RBI has allowed all non-deposit taking NBFC-Investment and Credit Companies (NBFC-ICCs) with asset size of ₹1,000 crore and above to carry on with factoring business, significantly boosting the number of such companies to 182 from seven earlier. Factoring companies offer bill discounting facilities to MSMEs. These can trade their receivables online and get immediate payment from factoring companies at a discount. This enables them to get immediate liquidity instead of waiting for the bills to be honoured by the customers.
However, if the customer doesn’t honour the bills, the MSME may still be liable for repayment to the factors.
The had amended the Factoring Regulation Act, 2011 in July last year, widenig the scope of companies that can undertake factoring business. The act permitted Trade Receivables Discounting System (TReDS) platform to file the particulars of assignment of receivables transactions with the central registry on behalf of the factoring forms for operational efficiency. The act also empowered the central bank to form regulations for factoring companies.
The central bank said in a gazette notification dated January 14 that eligible companies can apply to the Reserve Bank for seeking registration under the Act.
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