RBI issues norms for trading platform for MSME receivables

To help micro, small and medium enterprises (MSMEs), the Reserve Bank of India (RBI) on Wednesday permitted setting up of an exchange-based trading platform to facilitate financing of bills raised by such small entities to corporate and other buyers, including government departments and PSUs.

Issuing detailed guidelines in this regard, RBI said the Trade Receivables Discounting System (TReDS) should have a minimum paid up equity capital of Rs 25 crore and non-promoters would not hold over 10 per cent of the equity capital of TReDS.

Micro, Small and Medium Enterprises (MSMEs), despite the important role played by them in the economic fabric of the country, continue to face constraints in obtaining adequate finance, particularly in terms of their ability to convert their trade receivables into liquid funds, RBI said.

"Since the TReDS will not be allowed to assume any credit risk, its minimum paid up equity capital shall be Rs 25 crore.

The foreign shareholding in the TReDS would be as per the extant foreign investment policy.

"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 said.

Among others, RBI said, TReDS should have sound technological basis to support its operations, be able to provide electronic platform for all the participants and information about bills, discounting and quotes should be in real time supported by a robust information system.

"The TReDS shall have a suitable Business Continuity Plan (BCP) including a disaster recovery site...Shall have an online surveillance capability which monitors positions, prices and volumes in real time so as to check system manipulation," it added.

TReDS will facilitate financing of invoices/bills of MSMEs drawn on corporate and other buyers, including government departments and PSUs by way of discounting.

It would discount invoices so that final payment of the bill to the MSME is made by buyer on a due date.

MSME sellers, corporate and other buyers, including the government departments and PSUs, and financiers (both banks and NBFCs) will be direct participants in the TReDS, RBI said.

Setting up of TReDS platform follows statement by RBI Governor Raghuram Rajan in September 2013 to facilitate an electronic bill factoring exchange in the country for MSMEs.