Parul
The Reserve Bank of India (RBI) Governor Shaktikanta Das stated the central bank would broaden the application of the Trade Receivables Discounting System (TReDS) to enhance the cash flows for MSMEs in his presentation of the Monetary Policy Committee report on Wednesday.
“It is now proposed to expand the scope of TReDS by providing insurance facility for invoice financing, permitting all entities and institutions to undertaking factoring business to participate as financiers in TReDS and permitting rediscounting of invoices,” Das said.
Due to their limited financial resources, MSMEs frequently experience liquidity shortages. Small businesses might occasionally suffer greatly from a delay in payment for products or services delivered to a client, whether they be public or private.
Many people avoid taking on tasks that are lucrative but may have a delayed payment cycle out of dread of such a scenario. After the start of the Covid epidemic, MSMEs faced even greater financial difficulties. Units that couldn’t handle the severe resource shortage had to stop operating.
Regardless of the buyers’ credit ratings, the insurance option suggested by the RBI is likely to encourage discounting of payables. As a result, in addition to MSME sellers, buyers, and lenders, insurance companies will be allowed to join as a “fourth participant” on TReDS, according to the MPC report.
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Reacting to RBI’s move, Ketan Gaikwad, MD and CEO of TReDS platform RXIL shares his thoughts as he says, “The RBI’s measure to permit Insurance Companies as a fourth participant on TReDS, in addition to MSME sellers, buyers, and financiers, is a much-anticipated move as it will encourage financiers to allocate limits on buyers irrespective of their credit rating.”
“We, at RXIL, have already completed Trade Credit Insurance (TCI) sandbox testing and look forward to implementing TCI on live transactions as early as possible. Furthermore, by allowing secondary market operations on TReDS, financiers will be able to offload their existing portfolios to other financiers within the same TReDS platform. This shall support financiers to release their capital and engage in continuous discounting on TReDS. RBI’s TReDS platforms have grown by more than 100 per cent CAGR in the last 5 years. This move will aid in the infusion of liquidity into the MSME ecosystem,” he concluded.
