RBI eases factoring regulation rules to enable more firms to participate in the business

The new rules, which is effectively an easing of the existing regulations, will increase the number of NBFCs eligible to undertake factoring business significantly from 7 to 182, the RBI said.

The Reserve Bank of India (RBI) on January 20 said all existing non-deposit-taking NBFC-Investment and Credit Companies (NBFC-ICCs) with asset size of Rs 1,000 crore and above will be permitted to undertake factoring business subject to satisfaction of certain conditions.

Factoring is a transaction in which an entity can sell its receivables to another entity to fulfill immediate working capital or cash flow requirements.

The new rules, which is effectively an easing of the existing regulations, will increase the number of NBFCs eligible to undertake factoring business significantly from 7 to 182, the RBI said.

Also, other NBFC-ICCs can also undertake factoring business by registering as NBFC-Factor, the RBI said.

Eligible companies can apply to the Reserve Bank for seeking registration under the Act.

"Further, in respect of trade receivables financed through a Trade Receivables Discounting System (TReDS), the particulars of assignment of receivables shall be filed with the Central Registry on behalf of the Factors by the TReDS concerned within 10 days," the RBI said.

Recently, the Government amended the Factoring Regulation Act, 2011 which widens the scope of companies that can undertake factoring business.

The Act permits TReDS to file the particulars of assignment of receivables transactions with the Central Registry on behalf of the Factors for operational efficiency.

Further, the Act empowers the Reserve Bank of India to make regulations prescribing the manner of the grant of certificate of registration and for prescribing the manner of filing of assignment of receivables transactions by TReDS on behalf of the Factors.