Par panel submits report on Factoring Regulation Amendment Bill

PTI, Feb 3, 2021, 8:53 PM IST

New Delhi: A parliamentary panel has emphasised the need for the Reserve Bank of India (RBI) to build sufficient regulatory resources to ensure effective supervision of the factoring activities.

The suggestion was made by the Standing Committee of Finance, which reviewed and endorsed the proposed amendments in the Factoring Regulation (Amendment) Bill, 2020.

The report of the committee, headed by former minister of state for finance Jayant Sinha, was tabled in both the Houses of Parliament on Wednesday.

The committee observed that with the expansion in the number of players from the current seven NBFC-Factors to potentially thousands of factors, the RBI will be undertaking a mammoth regulatory responsibility, said the report.

The panel emphasised the RBI would need to ”build up sufficient regulatory staff/resources for efficient supervision of factoring activities so that the intent and purpose of the proposed amendments to address the lingering issues involving factoring industry, particularly the chronic delays in payment and liquidity crunch faced by enterprises are effectively addressed.”

Factoring is a transaction where a business entity sells its receivables from a customer to a third party which is a ‘factor’ for immediate realisation of funds either in part or in full. It may include invoice discounting, recourse factoring, non-recourse factoring, collections and reverse factoring. International factoring includes export factoring, import factoring, export invoice discounting and reverse factoring.

The Factoring Regulation (Amendment) Bill, 2020, was introduced in the Lok Sabha on September 24, 2020, with a view to liberalise the restrictive provisions in the Act and at the same time ensure that a strong regulatory/oversight mechanism is put in place through the RBI.

The panel in its report also suggested that the country needs to adopt best global practices to bring domestic factoring companies at par with their global peers and make credit finance more accessible to MSMEs.