RBI Sets Norms for Trade Receivables Discounting System Platform for MSME Receivables
RBI Sets Norms for Trade Receivables Discounting System Platform for MSME Receivables
RBI has notified norms for the establishment of Trade Receivables Discounting System/TReDS trading platform on December 4th, 2014 for MSME receivables/Micro, Small and Medium Enterprises.
TReDS Scheme
The TReDS Scheme is for the establishment and operation of institutional mechanisms for the facilitation of the financing of bills of MSMEs from corporate as well as other buyers. This includes PSUs and government departments.
Important Norms Announced by RBI
The apex bank has declared that MSME sellers as well as corporate and other buyers including PSUs, government departments and financiers both banks and NBFCs will directly participate in the TReDS. The TReDS scheme will also ensure a minimum paid up equity capital of INR 25 crore rupees and it will not permit any credit. Among entities, the promoters are the sole authority to have shareholding in excess of 10% of the equity capital of TReDS.
The extant foreign investment policy shall decide the extent of foreign shareholding in the TReDS. A sound technological basis for supporting these operations will be prevalent within the TReDS platform so that it can provide the electronic platform for all participants and data about bills, discounting as well as quotes within real time supported by bona fide and sound information system.
Moreover, the TReDS will also have a suitable plan for Business Continuity which includes disaster recovery site and an online surveillance capability for monitoring positions, prices and volumes in real time to ensure that system manipulation is in check.
It “will not be allowed to assume any credit risk,” said an official statement by the RBI. The apex bank will accept applications for the establishment of TReDS, till the close of business on February 13, 2015.
“The scheme for setting up and operating the institutional mechanism for facilitating the financing of trade receivables of micro, small and medium enterprises (MSMEs) from corporate and other buyers, including government departments and public sector undertakings, through multiple financiers will be known as TReDS,” RBI also said.
MSMEs were currently facing constraints in obtaining financing. The Central Bank therefore provided this mechanism which is institutional to fund trade receivables with this aim in mind.
"Entities, other than the promoters, will not be permitted to have shareholding in excess of 10 per cent of the equity capital of the TReDS. The overall financial strength of the promoters/entity seeking to set up TReDS would be an important criteria of assessment/selection," the central bank also said.
The apex bank also said that MSME sellers as well as corporate and other buyers including government departments and PSUs will be direct participants in this institutional platform. This follows efforts by the RBI to facilitate electronic bill factoring exchange in the nation for MSMEs.
