TReDS platforms enter discussions with insurers post RBI nod

However, tech integration, caution, pilot projects, and NACH development for debit and credit transactions slow down roll-out of TReDS-insurer integration After the Reserve Bank of India (RBI) permitted insurance companies to come onto TReDS (Trade Receivables Discounting System) platforms earlier this month, players have begun discussions with insurers. However, they anticipate a gradual take-off.

TReDS platforms have largely been approached by 2-3 general insurance companies that have received the Insurance Regulatory and Development Authority of India (IRDAI)’s approval for their credit insurance product and are now looking to integrate their product with the platforms, industry players said.

Discussions with insurers

“We are in talks with insurance companies. The initial interest is limited but 2-3 insurers have come forward, and we expect that once they start operations, we will see more interest,” said Prakash Sankaran, MD and CEO, Invoicemart.

However, back-end technology integration, digital upgradation for both TReDS and insurers, caution on the part of insurers and financiers, and development of NACH (National Automated Clearing House) capabilities for debit and credit for insurance companies, are ensuring that the roll-out is slow and being done through pilot projects or a sandbox approach.

“Globally, it is a big market with 30-40 per cent trade finance being backed by insurance. In India, it will take some time to develop this market,” said Ketan Gaikwad, MD and CEO of Receivables Exchange of India Limited (RXIL).

Developing the market

As they get accustomed to the ecosystem, insurers might initially look to cover higher-rated corporates to ensure profitability and security. However, they are expected to focus on lower-rated corporates, which have a greater need for guarantees, as financiers typically do not demand insurance against good corporates.

“So far banks have been discounting invoices mostly for ‘A-’ and above-rated customers. Lower-rated corporates were not getting credit sanctions and their vendor bills could not be discounted. Insurers will bring liquidity on the platform because now the risk can be shared by them,” said Sundeep Mohindru, MD and CEO, M1xchange.