IMPORTANCE OF FACTORING AMENDMENT BILL

JUst concluded parliament cleared the above-said bill which is the amendment of the earlier bill.

It is long pending demand from across the industry for the need for working capital problem-solving.

Before we discuss the current amendment, let's go back to its history. When our economic reforms started the flow of funds to the industry started, before that capital was scarce, the scarcity of funds a be imagined by checking the way of getting funding from banks.

To get the funding the only way was to get it from the informal sector. Rate and the conditions were beyond the imagination of today.

This was true for everybody, top-rated organization or others are similar with some minor differences.

The actual need for funds and availability is no point to discuss now.

The Government of India created a platform in the name of TREADS, in which the factoring process was started. It is led by scheduled commercial banks both PSU and the Private sector.

But the response from the bank on the same is lukewarm, as PSU does not have a separate unit for dealing with it and usual suspect from lower branch level officer was also adding to the problem.

The benefit of the above facility is that the working capital need of enterprises is mated that too without much cost.

Few banks have started the finagg unit for same but the working of same is not visible.

But after this amendment the NBFC can do the factoring process, the fine details are yet to be known which will be notified by the government in due course of time.

The cost of funds and limits may be somewhat increasing as NBFC themselves have to take loans from banks or any other source. They cannot take deposits from the retail public.

The real benefit for all will be in the function and developing the sector, with NBFC will be dedicatedly doing bill discounting it will give a visible receivable to all, be the government enforcement agencies and financial institutions.

The formal economy will increase the transparency in the system.

Once it is stabilized, the competition will reduce the overall costing for top-rated enterprises, depending on how much limit is utilized and the repayment of same. As it is unsecured, the risk factor will be counted by all.

The instrument is the old one that will be used legally with transparency.

The level field for everyone is created and given the framework for all will be the same and monitored by RBI.