Bank of Baroda, India’s leading public sector bank, has announced its on boarding on all 3 RBI approved Trade Receivables Discounting System (TReDS) platforms, thereby becoming the 1st Bank to support this novel Fintech initiative by RBI.
Though as per the MSMED Act, 2006, Micro, Small and Medium Enterprises (MSME) suppliers have to be paid within 45 days by the buyer to avoid penal interest, but small suppliers frequently see receivable days in excess of 90 days. The resultant cash flow mismatch has an adverse effect on operational facets as well as fund recycling efforts.
In order to address this pan India issue, RBI has authorised three entities viz., RXIL (JV of SIDBI & NSE), Mynd Solution Pvt. Ltd. & A.TREDS LTD (JV of Axis Bank &mjunction) to set up RBI regulated TReDS platforms to enable discounting of invoices/ bills of exchange of MSME sellers against large corporates, including government departments and public sector undertakings, through an auction mechanism to ensure prompt realization of trade receivables at competitive market rates, without recourse on MSME sellers.
To mark the commencement of operations, Bank of Baroda has discounted invoices raised on 15 corporates, including SYSKA LED, Prabhat Dairy, Eastman Auto, etc.
It is expected that combined volume of all 3 TReDS platform will touch Rs. 1,500 crore during current fiscal year and may clock business of Rs. 12,000 crore during FY 2018-19.
Speaking on the occasion Mr. P S Jayakumar, MD&CEO, Bank of Baroda said, “Bank of Baroda has a strong MSME franchise and we are delighted to be the 1st mover to support this innovative Fintech initiative by RBI. With scale, these platforms will become efficient industry markers for scale and liquidity. Besides discounting, we could also support rediscounting of the ‘discounted factoring units’, and introduction of credit enhancement instruments, which will deepen the market. Further, onset of GST and E-way bill will enable lenders in establishing veracity of invoices and movement of goods. Such verified underlying transactions shall heighten lenders’ confidence resulting in reduction of risk premium, which in turn will benefit the MSME suppliers.”
Speaking on the occasion Mr. Ashok Garg, Executive Director, Bank of Baroda said, “TReDS as an all-digital discounting exchange has brought all participants together for facilitating invoice discounting of suppliers in a frictionless manner, resulting in significant reduction in operating cost for all participants- financiers, buyers and MSMEs. We firmly believe the transaction and risk costs can be reduced dramatically employing technology. With 20+ Fintech initiatives and partnerships, the Bank has been at the forefront of innovating, and TReDS is another step in the direction to help solve our MSME customers’ pain point in an efficient manner.”