RBI eases priority sector norms for MSMEs
Q. RBI has eased priority sector norms to boost cash flow to which sector?- Published on 16 Aug 16a. Agriculture
b. Manufacturing
c. MSME
d. IT
ANSWER: MSME
RBI eased priority sector norms to boost cash flow to MSMEs including factoring transactions under priority sector lending with the aim to increase cash flow to small and medium sized enterprises.
- For increasing liquidity support for the MSME sector, the decision has been taken to factor transactions with on recourse basis eligible for priority sector classification by banks which are carrying out the business of factoring on a departmental basis.
- Factoring refers to a kind of financial transaction and debtor finance in which the business sells its invoices to a third party referred to as factor, at a discount.
- Companies often factor receivable assets to meet immediate cash requirements.
- Factoring transactions occurring through TReDS shall also be eligible for classification under priority sector lending upon operationalisation of the platform.
- TReDS is an exchange based trading platform to facilitate financing bills by small entities to corporate and other buyers including the government department and PSUs.
