The Chairman/ Managing Director/
Chief Executive Officer
[All Scheduled Commercial Banks
(excluding Regional Rural Banks)]
Dear Sir/ Madam,
Sector Lending status for Factoring Transactions
Please refer to Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 dated
July 7, 2016 on Priority Sector Lending (PSL) and Guidelines
dated December 3, 2014 for setting up of and operating the Trade
Receivables Discounting System (TReDS) issued by Reserve Bank of India.
2. To increase liquidity support
for the MSME sector, it has been decided that factoring transactions on
‘with recourse’ basis shall be eligible for priority sector classification
by banks, which are carrying out the business of factoring departmentally.
The factoring transactions taking place through TReDS shall also be
eligible for classification under priority sector upon operationalization
of the platform.
3. Banks may classify their
outstanding factoring portfolio on the reporting dates under MSME category
as per Paragraph 7 of Chapter (III) of Master
Directions on PSL dated July 7, 2016, wherever the ‘assignor’ in the
factoring transaction is a Micro, Small or Medium Enterprise, subject to
the corresponding limits for investment in plant and machinery/ equipment
and other extant applicable guidelines for priority sector classification.
4. In this regard, it is also
reiterated that as per Paragraph 9 of Department of Banking
DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015 on
Provision of Factoring Services by Banks - Review, inter-alia, the
borrower’s bank may also obtain from the borrower periodical certificates
regarding factored receivables to avoid double financing/ counting.
Further, the ‘factors’ must ensure to intimate the limits sanctioned to the
borrower to the concerned banks and details of debts factored taking
responsibility to avoid double financing.
Principal Chief General Manager