Reserve Bank of India

Trade Receivable e-Discounting System (TReDS)

Background

NTREES – an online bill discounting platform, was being operated by

NSE with SIDBI as a single financier since 2009

NTREES was based on Reverse Factoring model followed by NAFIN in Mexico

RBI floated a concept paper for launching Electronic Bill

Discounting Exchange in 2013

RBI issued TReDS guidelines on December 3, 2014

NSE and SIDBI jointly applied to operate the TReDS Exchange

NSE – SIDBI receives in-principle approval from RBI on December 2,

2015

RXIL incorporated on February 25, 2016 and launched India’s 1st

TReDS Exchange on January 9, 2017

What is TReDS?

Trade Receivable Discounting System “TReDS” is an online exchange being set

up under the approval of Reserve Bank of India (RBI) to facilitate discounting of invoices and Bills of Exchange on a PAN India basis.

To provide MSMEs working capital at competitive rates through an open bid process through multiple financiers.

The TReDS will facilitate the discounting of both invoices as well as bills of exchange.

Key participants to be “MSME”(The Seller), large corporates including PSUs and Govt. Departments(The Buyer) and Banks/NBFCs (The Financier).

Financing to be “Without Recourse” to MSME supplier.

What is TReDS?

It meets the twin objectives of providing access to working capital

and reduced cost for MSMEs. This will improve the liquidity in the

MSME sector significantly.

It is mandatory for all major public sector units to register on TReDS

within 90 days of the announcement.

The Public procurement policy states that 20 percent of all procurement by PSUs are to be made from MSEs.

TReDS Participants

Seller

Buyer Financier

Enterprises as per MSMED Act, 2006

PSUs, Corporates & Govt. Depts.

Banks & NBFC Factors

Centralised / Decentralised Operations

PSU

RO1 / Plant1 RO2 / Plant2 RO3 / Plant3

Design ated

Bank A/c

PSU

RO1 /

Plant1

Designated

Bank A/c1

RO2 /

Plant2

Designated

Bank A/c2

RO3 /

Plant3

Designated

Bank A/c3

Centralised Vendor Payment Decentralised Vendor Payment

Buyer – Seller Link Buyer creates link and MSME vendor accepts the link

Haircut Cap Rate Default Cost Bearer

(Seller /Buyer)

Cost Split details

(in case Buyer &

Seller agree to

share financing

cost)

Transaction

Charge

Bearer (Seller

/Buyer)

Default Credit

Period & details of

Extended Credit

Period, if any

Auction Timings

Activity Timings

TReDS platform 9:00 AM – 9:00 PM

Auction Period 1 – 5 days

Auction Timing 9:00 AM – 9:00 PM

Auction Cutoff Timing (T+1) Settlement 3:00 PM

Leg 1 Settlement – Financier to pay Seller T+1

Leg 2 Settlement – Buyer to pay Financier Due Date

TReDS Process Flow

Shipment of Goods

from Vendor to Buyer

Seller/Buyer Uploads

Invoice

Counterparty

( Buyer/Seller) Accepts

Invoice Online

In Auction - Financiers

Bid

Cost Bearer

Seller/Buyer) Accepts (

Bid

RXIL Generates

Obligations

Leg1 – Financier Pays

Vendor (T+1)

Leg2 – Buyer Pays

Financier

) ( Due Date

Leg3 – Buyer Pays

Vendor (Unfinanced)

Benefits

To Suppliers:

Easy, fast working, capital finance at cheaper interest rates.

Without recourse/non-collateral based finance.

Off balance sheet finance- sale of receivables.

One time documentation, no need to engage with multiple banks.

Receipt of funds within two days from acceptance of bid.

Benefits

To Buyers:

Saving on procurement cost through improved negotiation of financing terms for suppliers.

Saving on finance costs by extending credit period.

Off balance sheet transactions.

Digital platform – Lower administration cost for vendor financing, payments and settlements.

Benefits

To Financiers:

Opportunity to build quality PSL asset portfolio in MSME space.

Reduced operational cost along with improved reach to build clientele.

Ease of operation with minimum documentation.

Facility to make better decision making through key information availability.

How it works

Suppliers delivers the goods/services (outside TReDS).

Supplier Logs in & upload the Invoice (Rs.1000).

Validate invoice, convert to factoring unit & publish for acceptance.

Buyer Logs in & accepts the Invoice (Rs.1000).

Publish the factoring unit for bidding.

Financiers bid against the factor.

Accepts the Bids (% interest as best bid).

Buyer Supplier

Financier

Exchange

How it works

Exchange generates the settlement File to debit Financier and pay Supplier.

Exchange debits Financier’s bank account for Rs.900 and credit the supplier’s bank account.

On due date, final settlement file is generated.

Exchange debits Buyer’s bank account for Rs.1000 & credits the financier’s bank account.

Buyer Supplier

Exchange

Financier

Primary Data of Companies

RXIL, India’s first TReDS platform, started operations on January 09, 2017.

Mynd Solution’s M1 Exchange is the second TReDS platform, started

operations from April 07, 2017.

Invoicemart, a digital invoice discounting TReDS (Trade Receivable

Discounting System) platform, was launched in July by “A. TReDS”, a joint

venture of Axis Bank and B2B e-commerce company mjunction services.

How it Works?

16

Onboardi

ng

Factoring

Unit

Auction

Process

Settlemen

t Process

Entity Creation

•Register & Execute Master Agreement

Initiator

•Buyer / Seller upload invoices

Bid Offering

•Financiers bid

Leg1 (T+1)

• Debit Financier & Credit MSME Seller

• Register with CERSAI

Verification

•Verification & Due Diligence

Acceptor

•Counterparty accepts invoices

Bid Acceptance

•Cost bearer accepts the best bid

Leg2 (Due Date)

• Debit to Buyer & Credit to Financier

• Release factoring unit from CERSAI

Auction

•Auction of Factoring Unit begins

Obligation

•Leg 1 obligation - Financier to Seller generated

Leg3

• Unfinanced or Failed Leg1 settled directly between Buyer and Seller

Payment of Fees

•Pay Registration Fees

TReDS Arrangement

17

Buyer’s Designated Bank

A/c

Seller’s

Designated Bank A/c

Financier’s Designated Bank A/c

Financier

MSME Seller Buyer

Sponsor Bank

NPCI NACH Debit & Credit

TReDS

Exchange

Thank You !!!