RBI Revamps TReDS Rules, Simplifies MSME Onboarding And Funding Access

New Delhi, Jun 24 (KNN) The Reserve Bank of India (RBI) has issued comprehensive new directions governing the Trade Receivables Discounting System (TReDS), consolidating a decade of fragmented guidelines into a single regulatory framework. 

The directions come into effect immediately and repeal the original TReDS guidelines issued in December 2014 along with subsequent circulars.

TReDS is an electronic platform that facilitates the financing of trade receivables of micro, small and medium enterprise (MSME) sellers through multiple financiers, helping businesses convert unpaid invoices into liquid funds. 

The RBI in a release said that MSMEs continue to face constraints in obtaining adequate finance, particularly in this area, and the revised directions seek to strengthen the ecosystem accordingly.

Simpler Onboarding and Stronger Safeguards

The new directions simplify the onboarding process for MSME sellers, which the RBI identified as a key bottleneck in expanding participation on TReDS platforms. 

Platforms are now required to put in place validation mechanisms to confirm that sellers are genuine MSMEs and that funds due to them are credited only to their own bank accounts.

Buyers will be required to make an unconditional commitment to pay on the due date once a factoring unit has been accepted, with no option for set-offs related to the quality of goods or otherwise. 

The directions also mandate that assignments of receivables arising from TReDS transactions be filed with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).

Credit Guarantees and Insurance Now Permitted

In a significant expansion of the framework, financiers will now be allowed to obtain guarantee cover for factoring units from any credit guarantee fund trust set up by the government. Insurance companies and government-notified credit guarantee funds have also been recognised as eligible participants on TReDS platforms.

Financiers may avail insurance facilities for TReDS transactions, subject to the condition that the premium shall not be charged to the MSME seller. The RBI clarified that credit insurance will not be treated as a credit risk mitigant for the purpose of availing prudential benefits.

Revised Capital Requirements for Operators

The RBI has set a minimum net worth requirement of Rs 25 crore for entities seeking authorisation to operate a TReDS platform, aligning it with requirements applicable to other non-bank payment system operators. 

Existing authorised entities have until March 31, 2028 to comply and must maintain the threshold on an ongoing basis.

(KNN Bureau)