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Factoring Regulation (Amendment) Bill 2020

Factoring Regulation (Amendment) Bill 2020:

The Bill was recently passed by the Lok Sabha. The Bill seeks to widen the scope of entities that can engage in factoring business.

  • Factoring is a transaction where an entity (like MSMEs) ‘sells’ its receivables ( dues from a customer) to a third party ( a ‘factor’ like a bank or NBFC) for immediate funds (partial or full).
  • Currently, seven non-bank finance companies called NBFC factors do the majority of the factoring through the principal business condition.

Key Provisions:

  • The Bill has done away with threshold for NBFCs to get into the factoring business.
  • It widens the scope of financiers and to permit other non banking finance companies also to undertake factoring business and participate on the Trade Receivables Discounting System platform for discounting the invoices of micro, small and medium enterprises.
  • It reduces the time period for registration of invoice and satisfaction of charge upon it, in order to avoid possibility of dual financing.
  • It empowers the Reserve Bank of India to make regulations with respect to factoring business.