Expanding the scope of TReDS

PUBLISHED ON: 20-06-2023

The Reserve Bank of India has issued a circular dated June 7, 2023, to enhance the scope of the trade receivables discounting system (“TReDS”). The key aspects are set out hereunder:

Particulars	Old provision	New Provision
Insurance	Insurance was not permitted for TReDS transactions	Insurance facility is now permitted for TReDS transactions to enable the financiers to hedge default risks. Insurance companies would be the fourth participant in TReDS after buyers, sellers and financiers. No insurance premium can be levied on the seller.
Financiers	Only banks, NBFC-Factors and other financial institutions permitted by RBI could be financiers	All entities permitted to undertake factoring business under the Factoring Regulation Act, 2011 are now permitted to be financiers. This may include any company engaged in the factoring business and with a registration under the Factoring Regulation Act, 2011.
Secondary transfers	Secondary transfer were not permitted	TReDS platform operators may enable secondary transfers of factoring units within the same TReDS platform,  subject to the RBI guidelines for transfer of loan exposures.