Factoring regulation bill gets the go-ahead

Source: Livemint

Introduced: Lok Sabha (14th Sept 2020)

Present status: Referred to Standing Committee on 25th Sept 2020

About Factoring Regulation (Amendment) Bill,2020:
  • The Factoring Regulation (Amendment) Bill, 2020 amends the Factoring Regulation Act, 2011 to widen the scope of entities that can engage in factoring business.

Note: Factoring is a business where an entity(factor) acquires the receivables of a company at a discount and realizes it from entities that owe the money. This helps the company to monetize its receivables quickly and tackle cash-flow problems.

Key Provisions of the Bill:
  1. Participation of NBFCs:1.
    1. The bill seeks to liberalize the participation of non-banking financial companies (NBFCs) in the factoring business.
    2. It also removes the requirement of an entity, in the factoring business, to report every transaction within 30 days. The bill proposes that such finer details will be specified in regulations.
2. Removes RBI Authorization:
  1. The existing law on factoring business enacted in 2011 allows the RBI authorization for NBFCs to remain in factoring business only if it was their principal business: with more than half of their assets deployed and income earned from factoring business.
  2. The amendment bill removes this threshold. This is expected to open up the opportunity in this business to more non-bank lenders at a time small businesses are facing the financial stress of the second wave of the Covid-19 pandemic.
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