{"id":325,"date":"2017-09-25T11:16:58","date_gmt":"2017-09-25T11:16:58","guid":{"rendered":"http:\/\/m1xchange.com\/thought-xchange\/?p=325"},"modified":"2023-11-06T06:22:41","modified_gmt":"2023-11-06T06:22:41","slug":"treds-what-it-holds-for-banks-nbfcs","status":"publish","type":"post","link":"https:\/\/www.m1xchange.com\/thought-xchange\/treds-what-it-holds-for-banks-nbfcs\/","title":{"rendered":"TReDS: What it holds for Banks & NBFC"},"content":{"rendered":"

TReDS- An Introduction<\/strong><\/h2>\n

Trade Receivables Discounting System or TReDS is an RBI initiative to help the MSMEs in getting competitive finance so that their working capital requirements are met on time which is vital for their growth.<\/p>\n

The participants involved in TReDS are MSME suppliers<\/a><\/strong>, large corporate<\/strong> <\/a>buyers, and financiers<\/strong> <\/a>(Banks or NBFC Factors).<\/p>\n

Financiers are one of the key participants on TReDS<\/strong><\/a>, who bid on Factoring Units (which have Invoices or \u201cBill of Exchange\u201d as underlying instruments) that have been uploaded by the supplier and approved by the buyer. The financiers bid on the \u2018factoring units\u2019 basis the credit comfort on Large Corporates whom MSME vendors have supplied goods. This gives MSME suppliers a choice to select the most favorable bid & receive funds faster.<\/p>\n

TReDS- Beneficial Ecosystem for Financier<\/strong><\/h2>\n

In today’s regime, most of the banks are looking for digitized solutions hence attraction for the Fintech segment has increased a lot in the Banking Industry as well as other industries. Many banks have introduced digital bank accounts and have added a huge customer base in a very cost-efficient manner which shows the success & power of digital solutions. Many banks are partnering with many Fintech companies to enhance their offerings to customers. M1xchange is appreciated and utilized by the financiers<\/strong> as it provides access to a large corporate & MSME customer base in a cost-efficient manner.
The linkage of all stakeholders vide the digital platform benefits the entire Supply chain ecosystem<\/strong> and in specific to the needs of financiers.
M1xchange being RBI regulated TReDS<\/strong> platform provides an opportunity to the financiers to get quality assets in the MSME space across a wide geography in minimal time, cost, and effort. M1 automates the entire financing process, thereby, bringing down the turnaround time and enhancing customer experience.
The key benefits to the financiers are as follows:<\/p>\n

Fulfill PSL (Priority Sector Lending) targets more efficiently<\/strong><\/h2>\n

With the TReDS kind of institutional mechanism, Financial Institutions have the opportunity to build a quality PSL asset portfolio in MSME space.<\/p>\n

Reduced Operational Cost and Reduced Risk<\/strong><\/h2>\n

M1 is a centralized system that facilitates Buyer, Supplier & Financier to come on the same platform with one agreement binding all stakeholders.<\/strong> The approval of invoices by Buyers enhances the transparency of transactions and their commitment. The ease of use is very high for the financiers as a trail of the transaction is online and involvement of manual labor is limited to approving the transaction on the exchange. The connection with the customer is online and the time for the transaction on the digital platform is reduced to minutes in a day. This being cost-effective also provides financiers access to an MSME client base without any additional cost and infrastructure for onboarding.<\/p>\n

Informed decisions for enhanced profitability<\/strong><\/h2>\n

M1 enables financiers to make informed decisions by facilitating effective data collection and analysis related to Buyer & Supplier which makes it possible for financiers to take astute decisions.<\/p>\n

Seamless Settlement<\/strong><\/h3>\n

TReDS being authorized under Payment and Settlement system ACT, 2007 facilitates settlement of funds per regulated mechanism using NPCI settlement process subject to availability of funds in Financier (in Leg 1 when discounting proceeds are transferred from Financier to Supplier) & Buyer account (in Leg 2 when final settlement happens between Buyer & Financier). As per the Settlement process, NACH mandate is taken and registered at the time of onboarding from Financier & Buyer which is used to pull the funds from the bank account of a particular participant (i.e. Financier in Leg 1 and Buyer in Leg 2) and transferred the same into the bank of the corresponding party. Exchange sends advance alerts\/reminders to Buyer in order to ensure that they are aware of approaching settlement date & amount and make the necessary fund arrangement accordingly.
Further, the exchange provides the facility to request for an extension from the financier on the platform (which can be accepted by Financier at its sole discretion). This provides flexibility in the scenarios when there are contingent liquidity issues at the Buyer’s end on any particular day when payment is falling due.
The above mechanism reduces the operational risk of settlement and makes the process more controlled, reliable, and robust for Financiers<\/p>\n

Legal Framework-An important aspect for Financier<\/strong><\/h2>\n

Banks & NBFC Factor companies have been doing a lot of documentation to factor the transactions to manage legal recourse in case of any default.<\/strong> Hence, it is very imperative that the Legal Framework being used by TReDS is strong enough to enable financiers to take legal enforcement in case of any default while keeping the same easy & simple for other participants.<\/p>\n

M1xchange offers a very sound legal framework to ensure that Financier is fully comfortable on this aspect. The key highlights of the M1xchange system in this regard are as below:<\/p>\n