The Reserve Bank of India (RBI) on Thursday came out with clarifications for NBFC factor companies to remove any possible regulatory arbitrage with banks that provide factoring services.
The RBI said that a receivable acquired by an NBFC- Factor which is not paid within such period of its due date should be treated as non-performing asset (NPA) irrespective of when the receivable was acquired by the NBFC- Factor or whether the factoring was carried out on “with recourse” basis or “non-recourse” basis.
The exposure would be reckoned on the assignor in case of factoring on “with-recourse” and in case of factoring on “without-recourse” basis, the exposure would be reckoned on the debtor, irrespective of credit risk cover/ protection provided, except in cases of international factoring where the entire credit risk has been assumed by the import factor, the central bank said.
“NBFC-Factors should carry out a thorough credit appraisal of the debtors before entering into any factoring arrangement or prior to establishing lines of credit with the export factor,” the RBI stated.
It further added that factors and banks should share information about common borrowers and factors must ensure to intimate the limits sanctioned to the borrower to the concerned banks/ NBFCs and details of debts factored to avoid double financing.