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Bank Finance to Factoring Companies

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 which comply with the following criteria:

a) The companies carry out all the components of a standard factoring activity, viz., financing of receivables, sale-ledger management and collection of receivables.

b) They derive at least 80 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 80 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.

As per the existing guidelines, bills discounted / rediscounted by NBFCs (which is deemed to include any other mode of financing of receivables of the borrowers), except those arising from sale of certain types of vehicles, are not eligible for bank finance. Further, the unsecured loans extended by the NBFCs to other companies are also ineligible for bank finance.

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