RBI expands scope of TReDS platform to allow insurance facility, secondary market ops

The Reserve Bank of India on Wednesday decided to expand the scope of the Trade Receivable Discounting System or the TReDS platform allowing the use of insurance facilities. permitting entities eligible to undertake factoring business to participate as financiers on TReDS and allowing secondary market operations on the platform.

The central bank's decision is expected to boost trade of receivables increasing cash flows to MSMEs.

According to experts wider participation by more entities can keep the receivable discounting pricing under check as the volume on these platforms increases. Also, flexibility to allow re-discounting by existing holders of such discounted receivables will aid liquidity of participants.


Insurance coverage for the discounted receivables can also enhance the volumes and further reduce the pricing of such insured receivables, however the appetite of insurance companies to issue such coverage remains to be seen, ICRA said.

"The expansion of the scope of TREDs platform serves to enhance the formalization of the lending eco-system for MSMEs," Shivaji Thapliyal, Head of Research, Yes Securities. "The insurance facility will encourage financing activity for MSMEs, further deepening the market. It would also serve to create a new revenue opportunity for general insurers though, at this stage, it is not clear what could be the size of this opportunity. Secondary market operations will allow financiers to offload their portfolio to other financiers, which would further enhance liquidity on the TREDs platform and, ultimately, for MSMEs."

The RBI has licensed nearly half-a-dozen entities to start TReDS platform who process about Rs 60,000 crore worth of transactions annually.