Rs.25 crore minimum capital for Trade Receivables Discounting System

Chennai : The Reserve Bank of India (RBI) Wednesday stipulated a minimum capital of Rs.25 crore for entities setting up and operating the Trade Receivables Discounting System (TReDS).

According to the guidelines issued by the RBI, the start-up capital for TReDS outfits will be a minimum of Rs.25 crore and entities other than promoters will not be permitted to have shareholding over 10 percent of the equity capital.


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The guideline said the promoters/promoter groups should be “fit and proper” to operate TReDS.

The RBI would assess the “fit and proper” status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and track record of at least five years in running their businesses.

The RBI may also seek feedback on the applicants on these or any other relevant aspects from other regulators, and enforcement and investigative agencies like Income Tax, CBI, Enforcement Directorate, SEBI and others.

Since technology is going to play an important role in its operations, the RBI has stipulated that TReDS shall be able to provide electronic platform for all the participants; information about bills/invoices, discounting and quotes should be communicated on real time basis.

The TReDS shall have a suitable Business Continuity Plan (BCP) including a disaster recovery site and also have an online surveillance capability to monitor positions, prices and volumes in real time so as to check system manipulation.

Micro, small and medium enterprises (MSMEs), face constraints in obtaining adequate finance, particularly in terms of their ability to convert their trade receivables into liquid funds.

In order to address this pan-India issue through setting up of an institutional mechanism for financing trade receivables, the RBI in March published a concept paper on MSME Factoring-Trade Receivables Exchange.

Based on the comments received, the central bank came out with its guidelines.

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