RBI allows banks to factor export receivables to meet capital requirements
Updated: Jul 17, 2015 12:29:49pm
Mumbai, July 17 (KNN) The Reserve Bank of India (RBI) has allowed banks to provide ‘export factoring’ services to exporters on ‘with recourse’ basis by entering into arrangements with overseas institutions in order to improve their cash flow and meet their working capital requirements.
“In order to facilitate exports, Authorised Dealer Category – I (AD Category –I) banks have been permitted to provide ‘export factoring’ services to exporters on ‘with recourse’ basis by entering into arrangements with overseas institutions for this purpose without prior approval from the Reserve Bank of India subject to compliance with guidelines issued by the Department of Banking Regulation in this regard,” RBI said in a notification.
The decision has been taken following recommendation made by the Technical Committee on Facilities and Services to the Exporters.
By factoring export receivables, banks could provide cash to exporters, which would help exporters to meet cash requirement before the actual payment is received.
However, banks may take their own business decision to enter into export factoring arrangement on non-recourse basis.
"They should ensure that their client is not over financed. Accordingly, they may determine the working capital requirement of their clients taking into account the value of the invoices purchased for factoring," RBI said, adding the invoices purchased should represent genuine trade invoices.
In case the export financing has not been done by the Export Factor, it may pass on the net value to the financing bank/institution after realising the export proceeds.
Further, bank, being the Export Factor, should have an arrangement with the Import Factor for credit evaluation and collection of payment, the RBI said.
"KYC and due diligence on the exporter shall be ensured by the Export Factor," it added.
India's exports dipped by 15.82 per cent in June to USD 22.28 billion due to global slowdown and dip in crude oil prices that impacted shipments of petroleum products. (KNN Bureau)
“In order to facilitate exports, Authorised Dealer Category – I (AD Category –I) banks have been permitted to provide ‘export factoring’ services to exporters on ‘with recourse’ basis by entering into arrangements with overseas institutions for this purpose without prior approval from the Reserve Bank of India subject to compliance with guidelines issued by the Department of Banking Regulation in this regard,” RBI said in a notification.
The decision has been taken following recommendation made by the Technical Committee on Facilities and Services to the Exporters.
By factoring export receivables, banks could provide cash to exporters, which would help exporters to meet cash requirement before the actual payment is received.
However, banks may take their own business decision to enter into export factoring arrangement on non-recourse basis.
"They should ensure that their client is not over financed. Accordingly, they may determine the working capital requirement of their clients taking into account the value of the invoices purchased for factoring," RBI said, adding the invoices purchased should represent genuine trade invoices.
In case the export financing has not been done by the Export Factor, it may pass on the net value to the financing bank/institution after realising the export proceeds.
Further, bank, being the Export Factor, should have an arrangement with the Import Factor for credit evaluation and collection of payment, the RBI said.
"KYC and due diligence on the exporter shall be ensured by the Export Factor," it added.
India's exports dipped by 15.82 per cent in June to USD 22.28 billion due to global slowdown and dip in crude oil prices that impacted shipments of petroleum products. (KNN Bureau)
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