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

Enterprises as per
MSMED Act, 2006
Seller

Financier Buyer
PSUs, Corporates &
Banks & NBFC Factors
Govt. Depts.
 Centralised / Decentralised Operations

Centralised Vendor Payment Decentralised Vendor Payment

PSU PSU

Design ated RO1 / RO2 / RO3 /

Bank A/c Plant1 Plant2 Plant3

Designated Designated Designated

RO1 / Plant1 RO2 / Plant2 RO3 / Plant3 Bank A/c1 Bank A/c2 Bank A/c3
 Buyer – Seller Link
Buyer creates link and MSME vendor accepts the link

Default Cost Bearer

Haircut Cap Rate
(Seller /Buyer)

Cost Split details

Transaction Default Credit
(in case Buyer &
Charge Period & details of
Seller agree to
Bearer (Seller Extended Credit
share financing
/Buyer) Period, if any
cost)
 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

Counterparty
Shipment of Goods Seller/Buyer Uploads
(Buyer/Seller) Accepts
from Vendor to Buyer Invoice
Invoice Online

Cost Bearer
RXIL Generates In Auction - Financiers
(Seller/Buyer) Accepts
Obligations Bid
Bid

Leg2 – Buyer Pays

Leg1 – Financier Pays Leg3 – Buyer Pays
Financier
Vendor (T+1) Vendor (Unfinanced)
(Due Date )
 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
Buyer Supplier

Exchange

Financier

 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).
 How it works
Buyer Supplier

Exchange

Financier

 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.
 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?
Payment of
Entity Creation Verification
Onboardi Fees
•Register & •Verification & •Pay
ng Execute Master Due Diligence Registration
Agreement Fees

Initiator Acceptor Auction

Factoring
•Buyer / Seller •Counterparty •Auction of
Unit upload accepts Factoring Unit
invoices invoices begins

Bid Offering Bid Obligation

Auction Acceptance
•Financiers bid •Leg 1 obligation
Process •Cost bearer - Financier to
accepts the Seller
best bid generated

Leg1 (T+1) Leg2 (Due Leg3

Date)
Settlemen • Debit Financier & • Unfinanced or
Credit MSME • Debit to Buyer &
t Process Credit to Financier Failed Leg1
Seller settled directly
• Register with • Release factoring between Buyer
CERSAI unit from CERSAI and Seller

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 TReDS Arrangement

Financier

MSME Seller
TReDS Buyer
Exchange

Sponsor Bank

Seller’s Buyer’s
NPCI NACH
Designated Bank Designated Bank
Debit & Credit
A/c A/c

Financier’s
Designated
Bank A/c

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Thank You !!!