The Reserve Bank of India (RBI) in its latest report on Wednesday on the performance of the banking sector during 2022-23 and 2023-24 so far noted that the number of invoices uploaded and financed on TReDS grew by more than 56 per cent during 2022-23, with the success rate (invoices financed) remaining steady at 94 per cent.
TReDS is an initiative undertaken by the central bank in 2014 that allows MSME suppliers to discount their invoices and receive payments before their due date by ensuring the conversion of their trade receivables into liquid funds in a short period.
Moreover, the number of registered MSME sellers increased by nearly 51 per cent during FY23, while the number of buyers (corporates/other buyers, including government departments/ public sector undertakings) increased by 35 per cent, pointing towards improving participation on the platform, said RBI.
In 2017, the central bank had issued licenses to three non-bank companies M1xchange, Invoicemart (a joint venture ofAxis Bankand mjunction services), and RXIL (a joint venture between SIDBI and NSE) to operate on the TReDS mechanism for financing trade receivables through multiple financiers. TheRBIapproved the fourth entity – the global on-demand working capital platformC2FOto set up and operate an invoice discounting platform under TReDS in November 2022.
In June this year, the RBI had issued a directive to TReDS operators and participants to facilitate insurance for transactions, four months after proposing the participation of insurance companies on TReDS to encourage financing of invoices of buyers irrespective of their credit ratings.
Earlier, financiers such as banks, NBFCs, and others used to bid on the invoice at discounted rates depending on the buyer’s rating. Usually, financiers gave credit limits only above BBB and AA or AAA-rated buyers and shy away from buyers with credit ratings below BBB.
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