Updates from the RBI, guidelines on DLG, frameworks for compromise settlements and technical write-offs.
Expanding the Scope of Trade Receivables Discounting System
Notification No: RBI/2023-24/37 CO.DPSS.POLC.No.S-258/02-01-010/2023-24
Date: 07-Jun-23
Link for Notification:
To ease constraints faced by Micro, Small and Medium Enterprises (MSMEs) in converting their trade receivables to liquid funds, the Reserve Bank of India (RBI) had issued the ‘Guidelines for the Trade Receivables Discounting System (TReDS)’. The guidelines allow financing / discounting of MSME receivables on “without recourse” basis by permitted financiers. Currently, three entities operate TReDS platforms in the country; one more entity has also been given in-principle authorisation to operate such platform. Based on the experience gained, and as announced in the Statement on Developmental and Regulatory Policies dated 08-Feb-23, it has been decided to make the enhancements to the TReDS guidelines.
Guidelines on Default Loss Guarantee (DLG) in Digital Lending
Notification No: RBI/2023-24/41
DOR.CRE.REC.21/21.07.001/2023-24
Date: 08-Jun-23
Link for Notification:
Arrangements between Regulated Entities (REs) and Lending Service Providers (LSPs) or between two REs involving default loss guarantee (DLG), commonly known as FLDG, has since been examined by the Bank and it has been decided to permit such arrangements subject to the guidelines. DLG arrangements conforming to these guidelines shall not be treated as ‘synthetic securitisation’ and/or shall also not attract the provisions of ‘loan participation’.
Framework for Compromise Settlements and Technical Write-offs
Notification No: RBI/2023-24/40
DOR.STR.REC.20/21.04.048/2023-24
Date: 08-Jun-23
Link for Notification: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12513&Mode=0
The Reserve Bank of India has issued various instructions to Regulated Entities (REs) regarding compromise settlements in respect of stressed accounts from time to time, including the Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 (“Prudential Framework”), which recognises compromise settlements as a valid resolution plan. With a view to provide further impetus to resolution of stressed assets in the system as well as to rationalise and harmonise the instructions across all REs, as announced in the Statement on Developmental and Regulatory Policies released on 08-Jun-23, it has been decided to issue a comprehensive regulatory framework governing compromise settlements and technical write-offs covering all the REs.
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