RBI Says Unpaid Factoring Bills Will Be Treated As Bad Loans
- truckfactoring1332
- Feb 22, 2016
- 2 min read
Everyone knows bad loans equals bad credit .....
Some may not know who NBFC but they are a non-deposit taking NBFC, engaged in the principal business of factoring. Factoring is used by a seller who sells bills receivables to a third party (called a factoring agency), which pays the seller a major portion of the bills up front and collects the money from the buyer after the credit period is over. It then pays the seller the balance amount.
NBFC-Factors and banks, the Reserve Bank of India has clarified that receivables not paid to the former within the due date should be treated as non-performing assets (NPAs). RBI stated The treatment should be uniform and irrespective of the type of NBFC (systemically important or not or deposit taking/holding) and type of transaction – with or without recourse.
The RBI has also mandated that the credit risk taken by a factoring agency on a debtor should be within the limits stipulated by the board of the agency for such underwriting commitments. Banking regulator further mandates that NBFC-Factors should carry out a thorough credit appraisal of the debtors before entering into any factoring arrangement or prior to establishing lines of credit with the export factor.
Factoring services should be extended in respect of invoices representing genuine trade transactions, the apex bank has said. RBI has prescribed exchange of information between the concerned banks and NBFCs on factoring limits sanctioned to avoid double financing of the same receivable with the seller deemed to be a borrower.
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