Reserve Bank of India (RBI) revises criteria for Bank Finance to Factoring Companies

September 11, 2012:

Reserve Bank has introduced a new category of NBFCs viz.; ‘Non-Banking Financial Company – Factors’ in July 2012. “An NBFC-Factor shall ensure that its financial assets in the factoring business constitute at least 75 percent of its total assets and its income derived from factoring business is not less than 75 percent of its gross income.”

In view of the above, the criteria regarding asset and income of factoring companies eligible for bank finance have been reviewed by Reserve Bank of India. Accordingly, banks can henceforth extend financial assistance to support the factoring business of Factoring Companies which comply with the following criteria:



(a) The companies qualify as factoring companies and carry out their business under the provisions of the Factoring Regulation Act, 2011 and Notifications issued by the Reserve Bank in this regard from time to time.

(b) They derive at least 75 per cent of their income from factoring activity.

(c) The receivables purchased / financed, irrespective of whether on 'with recourse' or 'without recourse' basis, form at least 75 per cent of the assets of the Factoring Company.

(d) The assets / income referred to above would not include the assets / income relating to any bill discounting facility extended by the Factoring Company.

(e) The financial assistance extended by the Factoring Companies is secured by hypothecation or assignment of receivables in their favour.

NOTE- Reserve Bank of India in its notification dated 12th February 2008, has permitted banks to extend financial assistance to support the factoring business of Factoring Companies ...Read more



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