Factoring Regulation Amendment Bill 2021 passed in Lok Sabha | Daily Current Affairs 2021

Factoring Regulation Amendment Bill 2021 passed in Lok Sabha

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Factoring Regulation (Amendment) Bill, 2021

Factoring Regulation (Amendment) Bill, 2021: The Lok Sabha, on 26th July 2021 passed the Factoring Regulation (Amendment) Bill, 2021 without discussion amid protests from the opposition.

Highlights:

  • Union Finance Minister Nirmala Sitharaman moved the amendment bill for passage in the Parliament’s lower house.
  • It will now be tabled in the Rajya Sabha, for its consideration.
  • The bill seeks to help micro, small and medium enterprises by providing added avenues for getting credit facilities, especially through Trade Receivables Discounting System (TRDS).

Background:

  • This Bill was first introduced in the Lok Sabha on September 14, 2020, and then it was then sent to Standing Committee on Finance on September 25.
  • The committee’s report was then tabled in the Lok Sabha on February 3, 2021.
  • It aims to liberalize the Factoring Regulation Act, 2011 by widening the scope of entities that can engage in the factoring business

Key Points of Bill:

  • The changes in the Bill have been made in the bill in the interest of MSME sector.
  • The Bill simplifies the definition of factoring business in which banks, Non-Banking Financial Companies (NBFCs), or any business entity is involved.
  • The process of sale and acquirement of factors from one entity to another has been simplified in this bill.
  • The bill also widens the scope for entities to involve in the factoring business.

What are the proposals of the bill?

  • The following are the proposals of the bill:
    • To amend the definitions of “assignment”, “factoring business” and “receivables”, so as to bring them in consonance with international definitions.
    • To insert a new definition of “Trade Receivables Discounting System” (TRDS).
    • To amend section 3 of the Act to widen the scope of entities who can engage in the factoring business by allowing other non-banking finance companies also to undertake factoring business.
    • To amend sub-section (1) of section 19 of the Act to reduce registration time of invoice and charge upon it, to avoid dual financing.
    • To insert a new sub-section (1A.) in section 19 to allow the concerned TRDS to register charges on behalf of entities using the platform with the Central Registry.
    • To insert a new section 31A to empower the Reserve Bank of India to make regulations related to factoring business.

What is TReDS?

TReDS is an electronic platform introduced by RBI for facilitating the financing and discounting of the trade receivables of MSMEs via various financiers. So far TReDS has processed nearly 43,000 crores worth of invoices that have helped more than 25,000 MSMEs with better access to funds and liquidity.

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