Eligibility Criteria to Set Up and Operate Trade Receivables Discounting System (TReDS)

To set up and operate a Trade Receivables Discounting System (TReDS), entities must meet certain eligibility criteria, as outlined by the Reserve Bank of India (RBI). Here are the eligibility criteria to set up and operate a TReDS:

  1. Registration as an NBFC: The entity must be registered as a non-banking financial company (NBFC) under the Companies Act, 2013. The NBFC must also have a minimum net owned fund of INR 100 crore.
  2. Experience: The entity must have experience in the field of factoring, invoice discounting, or any other activity related to financing of trade receivables.
  3. Infrastructure: The entity must have a robust technology infrastructure, including a secure and scalable platform to support the TReDS operations.
  4. Governance: The entity must have a board of directors with relevant experience in finance and technology. The board must also have a proper governance structure in place to ensure compliance with regulatory requirements.
  5. Fit and Proper Criteria: The entity and its promoters must meet the fit and proper criteria as prescribed by the RBI.
  6. Capital Adequacy: The entity must have a minimum capital adequacy ratio of 15%, as per the RBI guidelines.
  7. Legal Framework: The entity must have a legal framework in place to ensure compliance with the applicable laws and regulations.
  8. Credit Assessment: The entity must have a robust credit assessment mechanism to assess the creditworthiness of SME sellers and corporate buyers.
  9. Risk Management: The entity must have a proper risk management framework to identify, assess, monitor, and manage risks associated with TReDS operations.
  10. Collaboration: The entity must collaborate with various stakeholders, including SME sellers, corporate buyers, financiers, and other TReDS platforms to ensure the efficient functioning of the TReDS ecosystem.

In summary, to set up and operate a TReDS, entities must meet the eligibility criteria prescribed by the RBI. The eligibility criteria are designed to ensure that only financially sound and technologically capable entities are allowed to operate TReDS platforms. The eligibility criteria also aim to promote transparency, efficiency, and innovation in the trade finance ecosystem.