RXIL's First Trade Credit Insurance Transaction In Sandbox With Tata AIG, ICICI Bank And YES Bank
Mumbai (Maharashtra) [India], November 25 (ANI/NewsVoir): Receivables Exchange of India Ltd. (RXIL) recently initiated a Trade Credit Insurance (TCI) backed transaction with Tata AIG as the insurer and ICICI Bank, YES Bank as the financiers in Sandbox environment.
This is the first time a TReDS platform has tested the efficacy of TCI backed transaction improving the ability of financiers in assigning credit limits to corporates. TCI, once implemented post regulatory approvals, will enable financiers to discount the invoices drawn on lower rated corporate buyers, by their MSME sellers and will improve the liquidity from lenders.
The adoption of Trade Credit Insurance on TReDS will pave the way for a completely digital bite-sized credit insurance model. Buying credit insurance on TReDS will be as simple as buying travel insurance while buying an air ticket on a travel portal, devoid of the lengthy paperwork generally associated with trade insurance.
"There has been a need for Trade Credit Insurance (TCI) on TReDS, we are glad that the regulators provided us with a roadmap in a time-bound manner. TCI will help financiers in mitigating the risk of non-payment and insolvency/defaults of the buyers. We collaborated with TATA AIG as the insurer, ICICI and YES Bank as financiers to execute the transaction. This is expected to increase the current throughput of the platform and put our country ahead in league with other developed markets the way this product has been designed," said Ketan Gaikwad, MD and CEO of Receivables Exchange of India Pvt. Ltd.
Trade Credit Insurance is a structural reform that has been re-introduced in India after a gap of 10 years. Globally, factoring and insurance go hand in hand, however, in India, both are being seen with a renewed interest as the economy is gradually moving towards formalisation of small businesses.
TCI on TReDS was one of the recommendations by U.K Sinha Committee report on MSME credit. The working group constituted by IRDAI reviewed the guidelines on TCI, which has paved the way for testing in Sandbox environment.
"We are delighted to partner with RXIL for the Trade Credit Insurance (TCI) and successfully piloting the test transaction under IRDA's regulatory sandbox proposal of TATA AIG. We are sure that TCI will significantly increase the ability of the buyers to get financiers to discount the invoices raised by their MSME suppliers, thereby benefitting a much larger universe of MSMEs. We believe TCI will gather further momentum when it gets approved as Credit Risk Mitigation Technique for lending," said Ajay Gupta, Head Transaction Banking and SMEG, ICICI Bank.
"With this successful pilot of the Trade Credit Insurance (TCI) backed structure in the Sandbox environment, YES BANK in partnership with RXIL has taken yet another significant step in its efforts towards digitizing and bringing efficacy in the financial supply chain arrangement between Corporate Buyers and their MSME sellers," said Ajay Rajan, Global Head - Transaction Banking Group, YES Bank.
"TCI being a globally accepted Trade Financing & Credit Enhancement structure could potentially help in augmenting and expanding the scope of supply chain financing, thereby supporting the 'Atmanirbhar Bharat' initiative of the Government," Ajay Rajan added.
Risk management and mitigation is an important component of a well-oiled supply chain that drives the economic engine. A simplified trade credit insurance regime that includes MSMEs will encourage more liquidity from lenders and improve the industry's resilience allowing them to expand faster.
Receivables Exchange of India is an RBI accredited TReDS (Trade Receivables Discounting System) Exchange Platform that started as a joint venture between Small Industries Development Bank of India (SIDBI) and National Stock Exchange of India Limited (NSE) with State Bank, ICICI and Yes Bank as other stakeholders.
RXIL empowers small businesses to realize their growth potential by accelerating their collections. With its innovative digital platform, MSMEs today can auction their trade receivables on a non-recourse basis at competitive rates, through online bidding by financiers, and gain access to capital in less than 48 hours. This helps MSMEs ease liquidity problems and puts a healthy cash flow back into their working cycles for smoother runs in their businesses. RXIL has over 4,800 MSMEs, 550 buyers and 39 financiers on the platform.
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RXIL initiates first Trade Credit Insurance transaction with Tata AIG General Insurance, ICICI Bank and YES Bank in Sandbox
Buying credit insurance on TReDS will be as simple as buying travel insurance while buying an air ticket on a travel portal, devoid of the lengthy paperwork generally associated with trade insurance
Receivables Exchange of India Ltd. (RXIL) recently initiated a Trade Credit Insurance (TCI) backed transaction with Tata AIG as the insurer and ICICI Bank, YES Bank as the financiers in Sandbox environment. This is the first time a TReDS platform has tested the efficacy of TCI backed transaction improving the ability of financiers in assigning credit limits to corporates. TCI, once implemented post regulatory approvals, will enable financiers to discount the invoices drawn on lower rated corporate buyers, by their MSME sellers and will improve the liquidity from lenders.
The adoption of Trade Credit Insurance on TReDS will pave the way for a completely digital bite-sized credit insurance model. Buying credit insurance on TReDS will be as simple as buying travel insurance while buying an air ticket on a travel portal, devoid of the lengthy paperwork generally associated with trade insurance.
Ketan Gaikwad, MD & CEO of Receivables Exchange of India Pvt. Ltd commented, “There has been a need for Trade Credit Insurance (TCI) on TReDS, we are glad that the regulators provided us with a roadmap in a time-bound manner. TCI will help financiers in mitigating the risk of non-payment and insolvency/defaults of the buyers. We collaborated with TATA AIG as the insurer, ICICI and YES Bank as financiers to execute the transaction. This is expected to increase the current throughput of the platform and put our country ahead in league with other developed markets the way this product has been designed”
Trade Credit Insurance is a structural reform that has been re-introduced in India after a gap of 10 years. Globally, factoring and insurance go hand in hand, however, in India, both are being seen with a renewed interest as the economy is gradually moving towards formalisation of small businesses. TCI on TReDS was one of the recommendations by U.K Sinha Committee report on MSME credit. The working group constituted by IRDAI reviewed the guidelines on TCI, which has paved the way for testing in Sandbox environment.
Ajay Gupta, Head Transaction Banking and SMEG, ICICI Bank said, “We are delighted to partner with RXIL for the Trade Credit Insurance (TCI) and successfully piloting the test transaction under IRDA’s regulatory sandbox proposal of TATA AIG. We are sure that TCI will significantly increase the ability of the buyers to get financiers to discount the invoices raised by their MSME suppliers, thereby benefitting a much larger universe of MSMEs. We believe TCI will gather further momentum when it gets approved as Credit Risk Mitigation Technique for lending.”
Ajay Rajan, Global Head – Transaction Banking Group, YES BANK said, “With this successful pilot of the Trade Credit Insurance (TCI) backed structure in the Sandbox environment, YES BANK in partnership with RXIL has taken yet another significant step in its efforts towards digitizing and bringing efficacy in the financial supply chain arrangement between Corporate Buyers and their MSME sellers. TCI being a globally accepted Trade Financing & Credit Enhancement structure could potentially help in augmenting and expanding the scope of supply chain financing, thereby supporting the ‘Atmanirbhar Bharat’ initiative of the Government
Risk management and mitigation is an important component of a well-oiled supply chain that drives the economic engine. A simplified trade credit insurance regime that includes MSMEs will encourage more liquidity from lenders and improve the industry’s resilience allowing them to expand faster.
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RXIL eyes ₹1,000-crore of transactions by Jan-Feb
With business getting back to normal and larger number of players onboarded, Receivables Exchange of India Ltd (RXIL) is confident that transactions on TreDs will touch ?700 crore in November, but says that more companies, particularly public sector firms, need to start transacting on the platform.
“In November, we expect to do ?700 crore with Diwali. We are expecting that by January or February next year, we should do about ?1,000 crore of transactions. Business is getting back to normal,” said Ketan Gaikwad, Managing Director and CEO, RXIL.
Transactions on RXIL’s platform had fallen to just about ?70 crore in April after the national lockdown, but started picking up from June and July.
RXIL, which is a joint venture between SIDBI and NSE, is the first of the three Treds platforms in the country. Trade Receivables Discounting System, or Treds, is an electronic platform for financing and discounting of trade receivables of MSMEs through multiple financiers.
In an interaction with BusinessLine, Gaikwad said the disruption has helped in expediting the digitisation of payments. It also gave RXIL the opportunity to talk to companies and MSMEs to register on the platform and start transacting.
“A lot more corporates have started transacting on the platform now. They have realised that for sustaining the ecosystem, they need to support MSMEs. The advantage is that you can make immediate payments to MSMEs and can also extend the payment cycle to 180 days,” he pointed out.
However, the potential of the platform is much higher, and a lot more corporates andpublic sector companies, need to start transacting on the platform, he said, adding that they are working with the government to see if it can be made mandatory for all PSUs to transact on Treds.
Gaikwad said just about 7 per cent to 8 per cent of payments are being done through the platform, though at least 1 lakh crore of discounting can happen through Treds.
In 2018, the government had made it mandatory for all Central PSUs and companies – with a turnover of ?500 crore – to join the Treds platform. The MSME Ministry had recently also reminded companies to register and transact on the platform.
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CPSEs clear dues worth ₹13,400 crore to MSMEs in last 5 months
- With CPSEs paying Rs.3700 crore to MSMEs in September 2020; the highest in a month, takes total payment to Rs.13400 crore in last 5 months
- MSME Ministry writes to over 2800 corporates to clear MSME dues
NEW DELHI : The government on Monday said central public sector enterprises have cleared payments to the tune of Rs.13,400 crore owed to micro, small and medium enterprises in the last five months and Rs.3,700 crore was paid to the units in September alone.
The micro, small and medium enterprises (MSME) Ministry this month has written to the top management of over 2,800 corporates by name to make payment of pending dues of MSMEs, an official statement said.
Last month, Ministry of MSME had written to top 500 corporates of India about the pending payments of MSMEs.
The Ministry has said that very good response has been seen from the corporate India. Out of the last five months, the maximum payments to MSMEs have happened in the month of September, 2020. Not only that, in that timeframe, even the procurement and transaction appears to be maximum in the month of September. MSME Ministry has informed that more than Rs. 13400 crore have been paid by Central Public Sector Enterprises (CPSEs) alone in the last five months. Out of this, payments worth Rs. 3700 crore have happened in September only. Ministry has complimented the Corporate sector of the country for this.
In its latest communication to large corporates, the MSME Ministry underscored the importance of making such payments now and said that it will facilitate the small enterprises to avail business opportunities in the coming festival season.
The ministry said that if the cash flows of MSMEs improve, they can make use of the festival season when there is opportunity to earn by supplying goods and services.
"In fact, some of the MSMEs look for such a period for their sustenance of the whole year. Thus, timely payment of their receivables at this time will not only support the MSMEs and their dependents in this festive season but will also sustain many of them for a full year," the statement said.
Therefore, the ministry has requested the corporates to see and make payment as soon as possible, preferably in the present month.
In addition, the ministry has also drawn attention of Corporate India towards important administrative, legal and Fintech-based provisions with regard to MSME payments.
The provisions state that it is ideal that payments are made in stipulated time. However, to solve the cash flow problems of MSMEs in absence of that, a bill discounting mechanism has been started by the Reserve Bank of India (RBI) in the name of TReDS.
It is mandatory for all CPSEs and the companies with turnover of more than ?500 crore to join this platform. However, many companies are yet to join or transact on it. Corporates have been requested to check whether their group/ company has joined the TReDS platform and is doing transactions.
The ministry also reminded the corporates of the legal provision under the MSME Development Act, 2006 which mandates to make the payment to MSMEs within 45 days.
"As per related regulations, the corporate entities are also supposed to file half-yearly returns with the Ministry of Corporate Affairs about the dues of MSMEs. In many cases, this too is not being done. The Ministry has requested the corporates for their attention and needful action on this also," the statement said.
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Govt asks top 500 private companies to clear MSME dues
NEW DELHI : The Union ministry for micro, small and medium enterprises (MSMEs) on Monday said it has “strongly" taken up with top 500 private companies the issue of delayed payments and dues to small businesses.
The outbreak of covid-19 and a consequent nationwide lockdown has battered small businesses, with most of them struggling to survive. Against this backdrop, MSME secretary A.K. Sharma has written to the companies, asking them to clear all dues as the payments are crucial for the survival of small businesses.
“This will ultimately benefit the entire economy, including the corporate world. The ministry has therefore requested the corporates to examine whether any such payments are pending and to release the same at the earliest," the government said.
Small businesses have been grappling with liquidity shortage because of the lockdown. In May, Union finance minister Nirmala Sitharaman had said that companies and government departments will have to clear pending dues to MSMEs in 45 days. Government departments and state-owned companies have already paid around ?10,000 crore, the ministry said.
“You may be aware that payment of MSME receivables within 45 days is mandated under the MSME Development Act, 2006, which is administered by this ministry. Moreover, your gesture will be a timely contribution for the economy of the nation. It will help bring a smile on millions of faces whose only source of livelihood are these smaller units," Sharma wrote.
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Government asks private sector to clear payments due to MSMEs
NEW DELHI: The Ministry of micro, small and medium enterprises has asked private sector enterprises in the country to clear dues of small businesses on priority.
The Ministry has directly taken up the issue with the top 500 corporate groups of the country, a statement issued by the MSME ministry on Monday said. Going further, the ministry will be taking up the matter with other corporates through social media as well, it has indicated in its communication.
When the AtmaNirbhar Bharat package was announced in June this year, the government had asked for all dues of MSMEs to be cleared within 45 days.
The MSME ministry has taken up the matter aggressively with Central Ministries, their departments and Central Public Sector Enterprises (CPSEs), the statement said.
Besides, an online system for reporting the monthly dues has also been set up by the ministry. “Around Rs. 10000 crores have been reported to have been paid by the Ministries and CPSEs,” the ministry said. The ministry has also taken up the issue with States and motivated them to monitor and see that such payments are made expeditiously. It has now reached out to the top brass of corporates in the country. These payments are very important for MSME operations and sustenance of jobs and other economic activities at the grass-root level, the ministry has said, asking corporates to examine if payments to MSMEs are due in their end, and release them accordingly. Towards another solution of the issue of cash flows of MSMEs, it has been emphasised that it was made mandatory by the Ministry of MSME in 2018, for all CPSEs and corporate entities with more than Rs. 500 Crore turnover to on-board on the TReDS platforms, the statement said.
Since many corporates are yet to join or transact on the platform, they have been requested to onboard their companies on the TReDS and start transacting. The ministry has also asked corporates to ensure that they are filing half-yearly returns as mandated by the Ministry of corporate affairs on their dues to MSMEs.
Govt asks PSUs to speed up trade receivable compliances
Mumbai: The government has cracked the whip on its central public sector enterprises (CPSEs) that have not completed the mandatory onboarding of their vendor network onto the electronic bill discounting platform TReDS. The matter was raised in a meeting at the Prime Minister’s Office last Tuesday.
These companies have been asked to submit compliance reports by August 27 to the Department of Public Enterprises (DPE), after it came to light that hundreds of government-owned corporations had not registered and transacted on the platform even once. ET had reported this on August 11.
Various ministries exercising administrative controls over these corporates have been asked to monitor progress and ensure compliance within the new deadline, the Ministry of Heavy Industries and Public Enterprises has said.
TReDS or Trade Receivables Discounting System is an electronic bill discounting platform regulated by the central bank to provide MSME ‘suppliers’ of corporate ‘buyers’ instant payments for future receivables. “The matter has been reviewed in a meeting held on 18.8.2020 at PMO and the administrative ministries/departments are to take necessary action so as to ensure CPSEs under their administrative control register their MSE vendors on TReDS portal on priority within a week’s time,” the ministry memorandum says.
Only 3,397 MSMEs of the 33,640 eligible vendors of these government corporations have been onboarded on to the platform till date, as per the memorandum, which was issued to the CEOs of all CPSEs. ET has reviewed a copy of the document dated August 21.
This comes on the back of ET’s report which said that only 155 of the 255 CPSEs had registered on the platform as of March. Of this, only 32 companies had even completed a single transaction, despite the government seeking mandatory compliance on numerous occasions over the past year. In fact, only eight CPSEs have settled dues worth more than 10 crore on the platform since inception in 2017. These companies include BHEL, Indian Oil, Bharat Petroleum, Hindustan Petroleum, Rashtriya Chemicals & Fertilizers, SAIL, Garden Reach and Vizag Steel; this was revealed in a performance report sent by TReDS stakeholders to the Ministry of MSMEs in June, which ET had accessed. Introduced in 2017, the platform has been billed as a key solution by the government to solve working capital woes faced by small businesses due to delayed payouts of supply invoices by companies. Banks and NBFCs finance invoices at competitively priced interests on a bidding basis on the platform, which then get structured as short-term loans to corporates with a maximum maturity period of 180 days.
This company’s digital solution is helping MSMEs maintain liquidity
Cloud is enabling Receivables Exchange of India to offer financing to MSMEs within 48 hours.
The Indian government labels the MSME sector as an important pillar for economic growth. However, maintaining liquidity of their funds is one of the major concerns faced by these small businesses in India.
To help MSMEs with the same, RBI authorised to establish Receivables Exchange of India Limited (RXIL). RXIL’s digital platform enables MSMEs to auction their trade receivables at competitive rates, through online bidding by financiers, and gain access to capital in less than 48 hours.
According to Sri Ragunath, VP-IT at RXIL, the organization has a core Trade Receivables Discounting System (TReDS) application, along with many adjunct platforms like onboarding, API Gateway, SoC Platform, ITMS, MIS and others integrating to it. This entire platform infrastructure (including Development and UAT workloads) resides on the cloud.
The SIDBI and NSE backed RXIL recently introduced a digital onboarding platform that allows MSMEs to remotely upload their documents. The onboarding application, with the help of APIs, is integrated with various government databases such as GSTN, MCA etc. and fetches the required information. Further, e-Signing and e-Stamping solutions have reduced manual interventions during the onboarding process.
Once an MSME seller has all the prerequisites in order, he can complete the onboarding and start transacting on RXIL platform in a day. In effect, the onboarding of an MSME seller, which used to take weeks earlier, has been brought down to just a few hours now.
“We have also transformed our integration services by hosting RXIL Rest APIs on Oracle Cloud’s API gateway. By issuing unique OAuth tokens for every API consumer (Buyer, Account Aggregator or Financier), we limit the access to only their data and information. So by adding an additional layer of source IP whitelisting - both the identity and access is locked down to a specific entity to ensure that the API integration between RXIL and its consumers is completely secure and tamper-proof,” said Ragunath.
The company’s TReDS platform runs on Oracle Cloud Infrastructure and uses another cloud provider for office productivity and collaboration.
“There are inherent cost, manageability and scale advantages when adopting cloud infrastructure, he believes. The current global crisis reaffirmed our belief that the cloud must be the first choice (sometimes the only choice),” he said.
In the next 2-3 years, RXIL aims to reform the customer experience on its platform by providing new financial services/products, and also reduce TReDS transaction cycle times by at least 30-40% percent.
The financial services provider has set up a Security Operation Center (SoC) to detect, analyze, and respond to cybersecurity incidents using a combination of technology solutions and a strong set of processes.
RXIL SoC monitors and investigates activity on RXIL’s OCI networks, virtual machines, databases, applications, websites, and other systems, looking for anomalous activity that could be indicative of a security incident or compromise. The SoC staff primarily comprises security analysts working together to detect, analyze, respond to, report on, and prevent cybersecurity incidents.
“With work-from-home becoming the new normal, endpoint has become the new edge, and securing this edge is equally important as securing the datacentre perimeter. Towards this, we have made investments towards endpoint threat protection and DLP application suites which ensures enterprise-grade threat and malware protection is extended to the endpoints as well,” averred Ragunath.
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All companies, government must Join TReDS
Most central public sector undertakings are reportedly absent on Trade Receivables Discounting System (TReDS), an online factoring platform that connects buyers, suppliers and financiers. This is unacceptable. The government must make all its arms and all public enterprises join TReDS to ease working capital shortage of micro, small and medium enterprises (MSMEs). Non-compliance should be made an offence, with the liability pegged on the CEO and the members of the board.
Around 10,000 MSMEs and 1,300 buyers (with a turnover of over Rs 500 crore) are now registered on TReDS. The total value of bills discounted (read: dues settled over the platform) is estimated at around Rs 23,000 crore. The volumes must rise, given that TReDS improves liquidity in the entire chain. A vendor just needs to upload to TReDS the invoice, which shows the sale of goods and services by the MSME to the buyer. The buyer authenticates the invoice.
Multiple financiers bid to take over the receivable from the supplier, the interest rate reflecting the creditworthiness of the large company on which the invoice has been raised, rather than that of the smaller supplier. The settlement file shows how much a financier has to pay an MSME seller and how much a buyer owes the financier on a particular date and time, bringing in credit discipline. Factoring has historically not taken off in India, because of the desire of large companies to use their monopsony power vis-à-vis their small vendors to delay payment for months. That bullying factor disappears in the TReDS arrangement.
There is no reason why government departments such as the National Highways Authority of India and Railways, large buyers from MSMEs with hefty outstanding payments, should not be part of TReDS.
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MSME revival may only be possible from the next fiscal
Despite revival measures by the government that have gradually unlocked the Indian economy following coronavirus-induced lockdowns, the revival of Micro, Small, and Medium Enterprises (MSMEs) is unlikely anytime soon, with prospects for recovery only by the next fiscal year.
The segment is expected to continue to face demand challenges as well as payment issues and labour uncertainty. Though the Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs started well, disbursements have not kept pace with sanctions due to the cautious availing of facilities by the MSMEs—since demand in the market has not completely revived, their capital utility is restricted. As a result, MSME players are adopting a cautious approach and are delaying availing of the full amount until demand revives to a certain extent to avoid excess interest costs.
It will need to be seen as to when this demand revival in the economy happens, which will play a crucial role in the revival of the segment.
According to Brickwork Ratings, before the implementation of the ECLGS, MSMEs faced severe liquidity issues amid difficulties in getting funds from banks. Outstanding credit to MSMEs declined by 4 per cent yearly as on 22 May 2020, even as overall bank credit was up by 6 per cent and credit to industries went up by 2 per cent.
The decline in credit outstanding to MSMEs was on account of the low-risk appetite of the banks in lending to MSMEs. Hence, the ECLGS provided a much-needed liquidity boost to these players to start operations post the lockdown. However, once the Rs 3 lakh crore under the scheme is exhausted by October 2020, further measures will be required to incentivise banks to continue lending to MSMEs, given that MSMEs’ performance is expected to be a slow grind up until demand is back in the economy.
“There are multiple challenges affecting the MSME segment in India. The demand in the economy has slumped and the ability of these MSMEs in getting labour back to work is proving to be challenging. These MSMEs do not have the ability to attract labour back to work when compared to the large companies who can provide them with transport and accommodation etc. Further, borrowing from the NBFCs has also been affected and the products such as loan against property have reduced. There are a lot of payment issues which they are facing as large companies are not releasing their payments—as they are facing financial stress,” says Rajat Bahl, chief rating officer, Brickwork Ratings.
“It is high time that the government should step in to revive the demand in the economy by spending more. If the government spends more then the people will also be encouraged to spend more and it will help shape up the revival,” he adds.
There is no doubt that MSMEs have been an engine of growth and job creation in India. Over 90 per cent of the 63 million enterprises in India are MSMEs. During the COVID-19 pandemic, MSMEs particularly had been hit hard. Their costs have continued to stay as high as 70-80 per cent, while the revenues had trailed by 20-25 per cent of the pre-COVID era. Delayed collections had also compounded the situation.
The government has already announced several measures to infuse liquidity into the economy. It is important to focus on expeditious execution of announced packages through state governments and local industry bodies, with clear communication of scheme details to MSMEs and banks.
“Additional funds specifically directed at nearly Rs 1 crore new-to-credit MSMEs with a condition to formalize informal businesses should be set aside. In addition, there should be an increase in uptake of supply chain financing and bill invoicing. Large corporate and Government should focus on quick disbursement of payables in line with MSMED Act, 2006,” pointed out Rishi Agrawal, CEO -Avantis Regtech Pvt. Ltd, a TeamLease Company.
MSMEs also face multiple compliance challenges as India's complex regulatory environment and perceived tax of formalisation have created a disproportionate number of economic dwarfs.
“MSMEs have traditionally preferred to stay small and informal. It is often assumed that MSMEs do not have to worry about compliances. However, it could not be farther from the truth. The burden of compliance for MSMEs is disproportionately high while their resources are limited. They need to deal with 27 licenses, registrations, permissions and consent orders. They can be pulled up by at least 20 different inspectors under various Acts. They have to deal with at least 364 compliances in a year i.e. almost one compliance a day. Consequences of non-compliance include severe financial penalties or even jail terms. To meet these obligations they need to work with multiple consultants. A conservative estimate of the annual cost of compliance for a typical MSME is around Rs 12 lakhs i.e. Rs 1 lakh per month,” added Agrawal.
A few experts feel that since the MSMEs contribute to 45-50 per cent of the country’s exports and 30 per cent of the GDP they can be prime beneficiaries of the pool of opportunities created by the government's Aatma Nirbhar Bharat movement build self-reliance.
“To help the MSMEs in the country, industry stakeholders need to reimagine finance and solve the working capital problems of the sector. Additionally, while announcing the next Foreign Trade Policy, the government should also do away with a subsidies based scheme and introduce a WTO-complaint policy. The government can also look at mirroring the success of the Technology Upgradation Fund Scheme of the textile industry to other export sectors and link Pradhan Mantri Kaushal Vikas Yojana to upskill labours to help MSMEs create globally competitive products,” remarked Pushkar Mukewar Co-CEO and CO-Founder, Drip Capital.
A few economists are also of the opinion that the MSME revival may take more than a year as the impact has been severe on the segment.
“The pandemic is expected to have a significant impact on household income levels that may regress to FY18 levels, wiping out around three years of progress. Besides that uncertainty has risen to a record high in recent days. Perceptions on the length of the outbreak will play a major role in shaping up the consumption pattern. All of this will affect the MSME segment severely. Recovery is expected to be uneven across sectors as some sectors will rebound quickly while some sectors such as MSMEs will take longer than many months,” pointed out Dr Arun Singh, Global Chief Economist at Dun and Bradstreet India.
With all these challenges, the recovery of the MSME will certainly be a gradual process rather than in a hockey stick pattern. With a gradual opening up of the economy, business seems to be limping back to normalcy.
“Though MSME business has been badly disrupted, there is a silver lining in the government’s efforts to boost the MSME sector by providing the much needed financial support and leniency. From collateral-free loans for restarting the business to moratoriums on existing loan EMIs can prove to be very helpful for the sector to bounce back,” said Raj N., Founder and chairman—Zaggle.
Some market experts feel that looking at the past few months, MSMEs are now more prudent about their cashflows and spending avenues. MSMEs are looking for quick working capital to keep themselves sustained and keeping their workforces safe as well. This is an overarching trend across all industries, at our exchange alone, we have noted a 100 per cent up-tick of MSME registrations since the lockdown began.
|While reinstating the pre-COVID-19 levels of the supply chain will take some time, operations are bouncing back as organizations are finding innovative and digital-first solutions for a lot of problem areas. We have also observed that large corporates that were earlier reluctant, are now utilising the Trade Receivables Discounting System (TreDS_ platform to repay their MSME suppliers and conserve their cash. The fact that TReDS offers a win-win proposition to all the participants has resulted in the transaction levels returning to pre-COVID levels,” says Ketan Gaikwad, MD and CEO of Receivables Exchange of India Limited.
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Most CPSEs yet to use TReDS to pay vendors
Mumbai: Three years ago, it was billed as the perfect solution to solve the working capital woes at small businesses. But despite the push by the government, many of the companies it owns are yet to onboard their small vendors on the Trade Receivables Discounting System (TReDS) platform.
Only 32 of the 255 central public sector enterprises (CPSEs) mandated by New Delhi to settle vendor dues on TReDS have made even a single transaction on the platform since it was introduced in 2017, documents accessed by ET showed.
More than 100 CPSEs have not even registered on the platform as of March 2020, despite the government seeking mandatory compliance a number of times.
ET has reviewed a copy of the performance update by TReDS stakeholders.
As of March, only eight CPSEs have settled dues worth more than Rs 10 crore on the platform. These companies include BHEL, Indian Oil, Bharat Petroleum, Hindustan Petroleum, Rashtriya Chemicals & Fertilizers, SAIL, Garden Reach and Vizag Steel. “TReDS platforms are pursuing the CPSEs to note the seriousness attached with the initiative; however, many CPSEs as stated above are yet to start transacting on the platforms…,” as per the cited document. It further noted that as of March, only Rs 1,020 crore worth of dues had been settled. Total dues settled over the period exceed Rs 18,000 crore. To be sure, TReDS is an electronic bill discounting platform regulated by the central bank and endorsed by the Centre to provide MSME ‘suppliers’ of corporate ‘buyers’ instant payments for future receivables.
Banks and NBFCs finance invoices at competitively priced interests on a bidding basis on the platform, which then get structured as short-term loans to corporates with a maximum maturity period of 180 days.
The coronavirus induced lockdown has created a massive liquidity constraint for small businesses across the country, further prompting the government to ensure timely payouts of late dues by its big corporates to ensure transparency.
Measures taken over the lockdown months by the government include waiver of onboarding fees for entities joining the TReDS network, reduction in cut-off in turnover for private corporates to onboard the platform to Rs 200 crore from the earlier Rs.500 crore, and inclusion of performance summary on TReDS in annual documents of CPSEs.
“It was requested that the fee of Rs 10,000 for joining TReDS may be exempted for MSMEs. (The) Prime Minister had given a clear direction to exempt the same,” an inter-ministerial letter to MSME Ministry from the Department of Financial Services said. ET has reviewed the letter.
These measures come on the back of circulars and memorandums issued by both the Ministry of MSME and Department of Public Enterprises asking public sector enterprises to mandatorily onboard TReDS and start settling vendor dues electronically or face penal action.
However, an industry official requesting anonymity said that memorandums have largely gone without heed as several top CPSEs have remained reluctant to transact on the TReDS platform citing onboarding and compliances related ch ..
However, an industry official requesting anonymity said that memorandums have largely gone without heed as several top CPSEs have remained reluctant to transact on the TReDS platform citing onboarding and compliances related challenges.
Now, the Reserve Bank of India is also set to weigh on the issue to increase the traction on the platform.
As per the official cited above, representatives from the central bank are set to meet with the CEOs of three TReDS platforms on August 11 to discuss ways to ease compliance and help MSMEs, corporates and financiers ensure ease of doing business on the platform.
Currently, there are three operational TReDS platforms that include Sidbi- and NSE-owned RXIL, Mynd Solutions-owned M1xchange, and Axis Bank-owned Invoicemart.
Platform that helps MSMEs raise funds, sees 20% jump in registrations from Tamil Nadu
Of the total MSMEs registered on the RXIL platform, about 15% are from Tamil Nadu and they largely belong to hubs like Tiruchi, Chennai and Hosur, said Ketan Gaikwad, MD & CEO, Receivables Exchange of India Limited
Receivables Exchange of India Ltd (RXIL), a trade Receivables Discounting System Exchange Platform, which helps micro, small and medium enterprises (MSMEs) auction their receivables and raise capital, has seen a 20% increase in registrations from Tamil Nadu during the lockdown period.
Trade Receivables Discounting System (TReDS) is an electronic platform that facilitates the financing and discounting of trade receivable of MSMEs, which are due from corporates and other buyers, including government departments and public sector undertakings. MSMEs auction the receivables and raise capital through multiple financiers. At present, there are three TReDS platforms -- RXIL, M1xchange and A.TReDS.
“We have enabled close to 400 MSMEs from across engineering, textile and automotive sectors in Tamil Nadu and are noticing an uptick from MSMEs requesting to be part of the platform,” Ketan Gaikwad MD & CEO, Receivables Exchange of India Limited (RXIL) said.
RXIL was incorporated on February 25, 2016 as a joint venture between the Small Industries Development Bank of India (SIDBI) – the apex financial institution for promotion and financing of MSMEs in India and the National Stock Exchange of India Limited (NSE). The registration charges on the platform have been waived off till September 30, 2020 under the SIDBI’s Swavalamban Crisis Response Fund.
“Tamil Nadu is a key region, as it has over 7.72 lakh registered MSMEs according to the annual report of MSME Ministry. Of the total MSMEs registered on the RXIL platform, about 15% are from Tamil Nadu and they largely belong to hubs like Tiruchi, Chennai and Hosur, with most of them engaged in manufacturing of heavy engineering products,” Mr. Gaikwad said.
The maximum number of MSMEs on RXIL’s TReDS platform are from Maharashtra, followed by Tamil Nadu and Delhi, he pointed out.
Overall, RXIL has close to 3,000 MSMEs, 500 buyers and 35 financiers on the platform.
However, a section of MSMEs are not convinced with the TReDS platform. “At present TReDS looks good only on paper. Most of the small and medium enterprises are not showing interest due to extensive procedures. Moreover, the same cannot be done without the buyer’s concurrence,” S. Vasudevan, joint secretary, Tamil Nadu Small and Tiny Industries’ Association said. He also pointed out that the bill discounting should be an automatic process once the invoices are uploaded on the platform, instead of the bidding process.
Mr. Gaikwad said TReDS as a concept, is still in its nascent stage, and has managed to provide financing worth ?19,000 crore to about 11,000 MSMEs across the country in its three years of existence.
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"CIL take vendors onboard the TReDS "
New Delhi: As a socially responsible corporate and considering the ensuing COVID19 pandemic, CIL organized a meeting of all its vendors, mainly comprising of MSMEs to take them onboard the TReDS (Trade Receivable Discounting System) platform.
TReDS is a mechanism of trade receivables financing for MSMEs on a secure digital platform. This platform is a transparent and efficient way of factoring invoices and ensuring timely payment to the vendors. A presentation of the working of TReDS was made by a RXIL representative who explained the advantages and usefulness of the platform.
Shri. V.G.Pratapan, GM – Administration, CIL, was the Chief Guest while Smt. Ratnabali Some, GM – Finance, CIL was the guest of honor. Shri. Sanjay, Sr. Manager (Per / Admn.) proposed the vote of thanks.
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I&C Directorate hosts awareness session on ABM initiatives, webinar on TReDS
Jammu: Awareness cum interactive programme on “Atmanirbhar Bharat Abhiyan/Self Reliant India Movement” was organized by Director Industries & Commerce, Jammu, Anoo Malhotra.
Joint Director (M&P), Trishla Kumari was the incharge of the session, while the meeting was attended by General Manager, District Industries Centre, Jammu, Subah Mehta; General Manager, District Industries Centre, Samba, Sansar Chand, and officers from State Bank of India and Punjab National Bank of Jammu & Samba District, besides representatives of Industrial Association and other functionaries of I&C department.
At the outset of the programme, Joint Director apprised the participants that due to Pandemic COVID-19, Government of India, Ministry of Finance have announced various schemes to strengthen and to mitigate the problems being faced in various sector including MSME Sector. “In order to ensure that the benefits of such schemes reach to all the eligible units registered with DICs as MSME, it is the need of the hour to work jointly to achieve the set targets to enable them to avail the benefits,” she said.
Threadbare discussions on various agendas were held. The Bankers apprised that under Atmanirbhar Bharat Abhiyan or Self Reliant India Movement, Rs 3 Lakh Crore collateral free automated loans for business including MSMEs has been rolled out and a large number of entrepreneurs are availing the same.
The corpus fund has been created by the Government of India as SOS funds to address the immediate needs of the Business community, the meeting was told. The scheme would continue till 31st of October, 2020 and finance shall be extended on first-cum-first serve basis. The additional lending is extendable only to the existing borrowers/loanees to the tune of 20% of the outstanding loan as emergency lending, the meeting was told.
No additional collateral guarantee is required and the same is hassle free for which the account holder falling under the Bank’s rating SMA0 & SMA1 are eligible, the meeting was informed further.
In addition, Bankers also apprised about various schemes being extended by the Government through Bankers for the entrepreneurs.
The Bankers also added that the said scheme is only for such loanee, who have earlier availed loans on Business / Manufacturing of firms / units under all categories and the same is not for individuals as well as for fresh loanees. There shall be moratorium on EMIs for 1st year of loan and loan shall be repaid in next 3 years in 36 installments.
Other schemes like CGTMSE, CGFMU, 59 minutes loan were also discussed. The unit holders were also apprised about the UDYAM REGISTRATION being launched on 1st of July, 2020 by Ministry of MSME. As per Udyam registrations the persons who intend to establish MSME units may file Udyam registration and all enterprises having UAM / EM-II needs to register on the portal.
The camp was attended by Vinod Dhar, AGM along with his team of Bankers including Gagandeep Kundal, Chirag Patil, Ajitabh Prashar.
Meanwhile, a webinar regarding Trade Receivables Discounting System (TReDS) was held under the chairmanship of Director Industries & Commerce, Jammu, Anoo Malhotra.
The webinar was organised by Department of Industries and Commerce Jammu in coordination with Micro, Small and Medium Enterprises-Development Institute (MSME-DI) and Receivables Exchange of India Limited (RXIL) for creating awareness on Trade Receivables Discounting System (TReDS) and its benefits which is being implemented in the Union Territory of J&K for maintaining the liquidity of MSMEs.
TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of MSMEs through multiple financiers. These receivables can be due from Corporates and other buyers, including Central Public Sector Undertakings (CPSUs). Sellers, buyers and financiers are the participants on a TReDS platform. Only MSMEs can participate as sellers in TReDS. Corporates, CPSUs and any other entity can participate as buyers in TReDS. Banks, NBFC – Factors and other financial institutions as permitted by the Reserve Bank of India (RBI), can participate as financiers in TReDS. It is highlighted that as a part for relief measure because of COVID-19 registration fee for the vendors/sellers has been waived off.
About fifty unit holders participated in the webinar wherein, Regional Head north RXIL, Ruchi Agarwal and CFO, RXIL Kailash Kumar Barodia were the experts from Receivables Exchange of India Limited.
Jt. Director Ved Prakash; Deputy Director MSME DI, Dr. Ashwani Kumar and General Manager DIC Jammu, Subah Mehta attended the webinar and raised various queries on the part of unit holders.
Deliberations were carried on the scope of TReDs in the Union Territory of Jammu and Kashmir. The Presidents of different associations evinced keen interest in this new scheme and were further of the opinion that the TReDS platform is definitely going to help to maintain the liquidity in the hands of the Entrepreneurs by providing immediate cash in the hands of sellers.
The session was organized under the guidance of Commissioner/Secretary Industries & Commerce, Manoj Kumar Dwivedi.
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Economic engine starts moving; TReDS platform RXIL's biz getting to pre-COVID level
RXIL, a joint venture between Small Industries Development Bank of India (SIDBI) and National Stock Exchange of India Limited (NSE), is one of the three entities approved by RBI to run the TReDS platform
- TReDS operator RXIL saw virtually no transaction in the month of April but hopes the volume to go up and reach pre-COVID level
- It expects to settle trade receivables worth about Rs 400 crore in July
- In the last two years, RXIL has on-boarded 2,500 MSME vendors on its platform but plans to add 10,000 in the current fiscal
- An industry survey recently said that RXIL has been a laggard despite strong institutional backing
After transactions plunged on its Trade Receivables Discounting System (TReDS) platform in April, Receivables Exchange of India Ltd (RXIL) hopes the volume to rise in coming months with more corporates and MSMEs coming on-board for bill discounting.
TReDS is an institutional mechanism to facilitate financing of trade receivables of micro, small and medium enterprises (MSMEs) from corporate buyers through multiple financiers.
RXIL, a joint venture between Small Industries Development Bank of India (SIDBI) and National Stock Exchange of India Limited (NSE) is one of the three entities approved by RBI to run the platform.
"In the month of April, there were not many transactions. From May onward, transactions started picking up. Now we are moving towards normalcy," says Ketan Gaikwad, CEO, RXIL.
It expects to settle trade receivables worth about Rs 400 crore in the month of July.
Noting that many corporates and PSUs have registered on the platform but are not transacting, Gaikwad says situation should get better now as many of the entities have realised the benefits of credit period for payments to MSMEs.
"There are around 255 PSUs of which 155 are registered on one of the platforms. Singularly, RXIL has around 104 PSUs on its platform of which 15 are active. As regards all the three exchanges, I would say 30 PSUs are active," he said.
The TReDS operator wants the government to make it mandatory to route all payments to MSMEs through the digital platform.
"This is the platform where the government can get complete information about how many invoices are being uploaded, how many of them are rejected or not accepted and how many of them are not paid. So, that is a very transparent thing and we are pushing for this," RXIL chief executive said.
Delay in payments to MSMEs by corporates and government entities has been a perennial issue despite Micro, Small and Medium Enterprises Development (MSMED), Act 2006 mandating buyers to make payments within 45 days.
In order to deal with the issue, RBI in 2014 came up with the concept of TReDS and later issued licences for the digital platform to three players - RXIL, M1Xchange and A TReDS. The overall performance of TReDS platforms has, however, been considered sub-optimal given its market potential.
"Despite strong institutional backing, the Receivables Exchange of India Ltd (RXIL) has been a laggard," concluded a survey carried out jointly by industry body FISME, SKOCH Group, Bhartiya Vitta Salahkar Samiti (BVSS) and Tax Law Educare Society (TALES).
RXIL's Gaikwad said that the exchange has onboarded a total of around 510 corporates of which around 100 are PSUs. He admitted that the on-boarding has been slow but the exchange has ambitious plan to ramp up the number.
"My target is to reach a phase when we can onboard 2,000 vendors every month. So, we are saying that this year we should target at least 10,000 MSME vendors. In the last two years, RXIL has on-boarded 2,500 vendors," he said.
"The target for this year is quite ambitious and aggressive but we are confident as we have a digital platform which can help us on-boarding as many vendors," RXIL CEO said.
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PM Modi to MSMEs: Your products can reach even me directly; urges selling on e-commerce portal GeM
Technology for MSMEs: GeM marketplace was launched in August 2016 to bring transparency and efficiency in the public procurement process. The portal has over 3.87 lakh sellers out of which around 1 lakh are micro and small sellers.
Technology for MSMEs: Prime Minister Narendra Modi on Thursday urged micro, small and medium enterprises (MSMEs) and other businesses to join the government’s online marketplace – Government e-Marketplace (GeM) to sell directly to the government bodies, organisations and departments. Addressing the annual plenary session of the industry body Indian Chamber of Commerce (ICC), Modi said that “GeM has given the opportunity to earn profit by connecting with the government.” Businesses including MSMEs, large enterprises, individual units or self-help groups can directly with complete transparency, he added.
Earlier, unless you had a particular turnover size, production capacity and brand, you couldn’t think of selling goods directly to the government but now you can and your goods can reach even to the Prime Minister, Modi said. GeM marketplace was launched in August 2016 to bring transparency and efficiency in the public procurement process. The portal has over 3.87 lakh sellers out of which around 1 lakh are micro and small sellers. Overall, there are more than 17.76 lakh products listed on the portal that has a transaction value of Rs 54,184 crore.
Modi also urged ICC to encourage its members including manufacturers to join the GeM portal with the “product quality that even the government cannot say no to them.” If ICC members join GeM then even small businesses would be able to sell directly to the government, he said.
The government had in the past made efforts to attract more sellers on its marketplace. In December, GeM had launched GeM Samvaad a two-month national outreach programme to attract and onboard sellers. According to the government’s Public Procurement Policy for MSMEs, every central ministry, department, and PSU has been mandated to set an annual procurement target of minimum 25 per cent from micro and small enterprises of their total annual purchases.
In her Budget 2020 speech, Finance Minister Nirmala Sitharaman had proposed increasing the turnover of the GeM portal to Rs 3 lakh crore. The portal had also partnered with Trade Receivables Discounting System (TReDS) platform operator Receivables Exchange of India Ltd (RXIL) to help government departments to finance their payments to MSME sellers of goods and services.
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MSME definition widened further to include firms with up to Rs 250 cr turnover
New Delhi: The Union cabinet has approved further changes to the definition of micro, small and medium enterprises, a Rs 20,000-crore fund to provide equity support to stressed entities in the sector, and equity infusion of Rs 50,000 crore into MSMEs through a fund of funds.
As per the new definition, a company with up to Rs 50 crore investments and up to Rs 250 crore turnover is classified as a medium enterprise.
This is higher than the definition announced by finance minister Nirmala Sitharaman as part of the Rs 20 lakh-crore Atmanirbhar Bharat package to counter the economic and social impact of the Covid-19 pandemic and resultant lockdown, which had pegged the investment limit for medium companies at Rs 20 crore and turnover at Rs 100 crore. The Atmanirbhar package provided for Rs 3 lakh crore collateral-free loans for MSMEs.
The definition has been widened in line with industry suggestions and will help a wider section of companies to avail various sops announced for the sector, MSME minister Nitin Gadkari told reporters after the cabinet meeting on Monday.
“When we interacted with different associations, we were told that the turnover limits should be widened,” he said. “So the government, led by Prime Minister Modi, has accepted this request.”
As per the new definition, micro units can have up to Rs 1 crore investments and turnover of up to Rs 5 crore while businesses with an investment of up to Rs 10 crore and turnover of up to Rs 50 crore will be classified as small.
“Whether these are micro, small or medium enterprises, their export turnover will not be factored in,” Gadkari said.
Industry insiders said the enhanced turnover limit brings huge relief to many companies that were worried that they would not be eligible for MSME status.
“For the first time in the history of Indian economy, viable stressed MSMEs will be able to come out of NPA stigma and be able to get additional funding too in the form of subordinate debt,” said Mukesh Mohan Gupta, president of Chamber of Indian MSMEs (CIMSME).
The cabinet on Monday also gave its nod to the proposal for provisioning of Rs 20,000 crore as subordinate debt to provide equity support to stressed MSMEs, which is expected to benefit 200,000 stressed units.
A proposal for equity infusion of Rs 50,000 crore for MSMEs through a fund of funds has also been approved. This will establish a framework to help MSMEs in managing the debt-equity ratio and in their capacity augmentation, the government said.
"While I am pleased on setting up of funds and subordinate debt, the extent of impact on MSMEs due to these measures owing to abnormal circumstances is a matter of debate,” said KR Sekar, Partner at Deloitte.
Growth in financing and invoice discounting will be back to normal by first half of July: RXIL, CFO
Due to COVID-19, many corporates are not able to make payment obligations leading to delays of over 40-60 days. MSMEs are now in need of more immediate funds. While the traction for MSMEs is likely to increase on a platform like TReDs, corporates are refraining due to cash flow issues. ETCFO spoke with Kailash Varodia, CFO of RXIL, to understand what has been the major impact of the pandemic on key players on the platform. He also discusses what does the change in the definition of MSME mean for their platform.
The lockdown caused by COVID-19 pandemic has left Micro, Small and Medium Enterprises (MSMEs) cash-starved. Payment delays, buyers reneging on invoice obligations and rising loans may further deepen their debt trap. Trade Receivables and Discounting System (TReDS) platform Receivable Exchange of India (RXIL) sees a 70 per cent dip in invoice discounting in April.
“During the first phase of the lockdown, we saw the transaction volumes fall to 22-25 per cent of pre-COVID times. In May, we are expecting this figure to rise to 40 per cent of pre-COVID levels,” said Kailash Varodia, Chief Financial Officer (CFO) of RXIL. He expects growth in financing and invoice discounting to come back to normal by mid-June to first half of July.
RXIL is a joint venture between Small Industries Development Bank of India (SIDBI), the apex financial institution for development of MSMEs and National Stock Exchange of India Limited (NSE).
The RBI regulated TReDS platform offers discounting of invoices through factoring and reverse factoring. RXIL facilitates MSMEs to auction their trade receivables at competitive rates through transparent online bidding by multiple financiers. It caters to the financing needs of the MSMEs through finance trade receivables based on the buyers’ credit rating.
Due to COVID-19, many corporates are unable to make payment obligations and the invoice cycle is getting delayed beyond 40-60 days while MSMEs are in need of immediate funds. Even as the traction for MSMEs is likely to increase on the platform, corporates are refraining to participate due to cash flow issues.
However, there are no defaults on the platform while there have been delays in payment as economic activity has come to a complete halt, according to Varodia. As the retail offtake is limited, supply chains disrupted and collections have been restricted. This has resulted in limited cash in the hands of the corporates to service payment obligations.
"The country has entered lockdown 4.0 and some companies have resumed production partially. This change is reflected in our transaction volumes which are showing an upward trend as compared to the last month or the initial phase of the lockdown," Varodia said.
THE STORY IN NUMBERS
Since the lockdown, there has been a threefold increase in the inquiries by MSMEs for registering on RXIL. The Mumbai-based platform has over 2,000 MSMEs as members. Since the lockdown began in March, it has received around 1,500 inquiries for registration.
The TReDs platform has three key players in its ecosystem -- buyers, which are mostly big corporates, sellers, the MSMEs, and financers in the form of bankers and NBFCs.
Buyers and financers have been in a difficult spot amidst COID-19 and that is reflected in RXIL’s engagement. “Convincing buyer to get registered on the platform is challenging, as it requires them to be disciplined with their payments due dates,” Varodia said, adding the risk in the model is minimal as financing is done on the strength of the buyer. "Also, as it is an RBI-approved platform and financers are involved, this is the last place where the buyer would want to default."
RXIL currently has around 500 buyers, including 102 public sector enterprises; 2000 sellers, with 90 per cent of them falling in the micro and small categories; and 35 financiers including public sector banks, private and foreign banks. The platform is now in talks with many NBFCs and is looking at increasing their number on the platform once there is clarity on the amendments awaited in the Factoring Act,” Varodia said.
Large corporates, as buyers of receivables, need to get registered and activated on the platform. Corporates registered under the Companies Act, 2013 with a turnover of more than Rs 500 crore have to get themselves registered on the TReDs platform to ensure cash liquidity for MSME suppliers, according to a November 2018 notification of the Ministry of Micro, Small and Medium Enterprises.
However, Varodia explains, it is not mandatory for buyers to "start operations" on the platform. Thus, the main challenge is to convince buyers to do both - register and activate.
WHAT DOES THE CHANGED DEFINITION OF MSMEs MEAN FOR RXIL?
Last week, Finance Minister Nirmala Sitharaman simplified the definition of MSMEs. Micro enterprises: All businesses with investment up to Rs 1 crore and turnover up to Rs 5 crore; Small enterprises: All firms with investment up to Rs 20 crore and turnover up to Rs 50 crore; and Medium enterprises: All firms with investment up to Rs 20 crore and turnover up to Rs 100 crore.
In Varodia’s personal view, the change in the investment and turnover criteria will lead to an increase in the number of MSMEs in the country. Companies which were on the fringe due to their investment in plant and machinery will now be allowed to take the advantage of the various benefits extended to MSMEs including TReDS.
He explained that companies with relatively high investment in the range of Rs 11 to 12 crore with a turnover of around Rs 60-70 crore and supplying to corporates would now be called MSMEs. On the other hand, companies that have no heavy investment but turnover is more than Rs 100 cr and their margins and income ratio is low, could fall out of the MSME category now.
Varodia said RXIL is following a 100 per cent work-from-home routine for its staff and is in the process of working out a policy on the same lines for future as the world now has to live with COVID-19 realities for next 2-3 months.
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ET Edit: MSMEs in need of immediate succour
While the provision of credit might suffice to help larger industry tide over the grim period of zero revenue during the lockdown, micro, small and medium enterprises (MSMEs) might require a dose of funds that do not require to be serviced, at least in the short term. It could be an outright grant, on the lines of the funds being extended across Europe and the US, to help industry meet fixed costs, chiefly wages. Or it could be equity from the fund of funds the government has proposed. By the time the fund of funds is set up and breeds a sufficient number of daughter funds to together provide succour to MSMEs, there might not be a whole lot of the smaller companies left standing to receive those funds.
A practical solution might be for the government to direct banks to give loans with 100% interest subsidy, for a quantum that would cover these enterprises’ fixed costs for a four-month period, to their small business clients, particularly those borrowing under the Mudra scheme. The Small Industries Development Bank of India can help with identification of units to be helped as well, and the new crop of banks that previously existed as microfinance institutions can be of particular help in this regard. The government could take the help of non-banking financial companies (NBFCs) with a good track record as well. The fund of funds could buy out these loans from the banks and NBFCs and convert them into equity in the companies so assisted. The promoters could be given the option to buy out the government stake later. Full operationalisation of the Trade Receivables Discounting System (TReDS), an online factoring platform that holds great promise in realising swift settlement of MSME dues, brooks no delay either. Large buyers who do not cooperate should have their rating impaired.
Announcement on Clearing Delayed Payments to MSMEs Key to Boost Liquidity As Well As Sentiments: CII
New Delhi: The Finance Minister announced stimulus package to boost liquidity availability to MSMEs with 100% Government Guarantee. This was a signalizing initiative to boost sentiments of MSMEs who have been facing the impact of COVID-19 lockdown. A major boost that would build sentiments of MSMEs are payment of dues to MSMEs.
While there are several estimates of amounts due to MSMEs from the Government and PSUs, a quick poll by CII of MSMEs to whom payments are pending indicated that about 450 MSMEs reported delayed payments worth Rs. 1,819 crores of which Public Sector/ Government Departments including State Departments owe MSMEs RS 1,709 Crores and the private sector also owes about R S 110 crores to MSMEs, said Mr Chandrajit Banerjee, Director General, CII.
The sample CII poll revealed that ab out 32% of the outstanding to MSMEs have been delayed for more than 2 years and about Rs 895 crores are stuck in disputes. These need to be resoled soon to save the MSMEs from solvency, Mr Banerjee, added.
Out of the total delayed payments amount, manufacturing contracts account for Rs 153 crores, services contracts account for Rs 723 crores and multiple sectors accounted for Rs 930 crores.
Almost Rs 723 crores are delayed payments from services sector areas including EPC contracts (Rs 92 crores), Engineering contracts (35 crores), IT & ITES (47 crores) and other services (Rs 113 crores).
Appreciating the FM’s announc ement to release all payments immediately, Mr Banerjee said, CII suggests measures to alleviate the issue of pen ding payments to MSMEs including tax refunds and incentives;
One, the government should monitor payment delays by CPSUs to MSMEs closely through a portal for complaints and ensure nece ssary funds are provided and utilized for this p urpose.
Two, all PSUs and Governme nt Departments both at the Central and State Government levels must be encouraged or mandat ed to register themselves on TREDS.
Three, in addition to overcome the delays in payments to MSMEs due to disputes all pending GST refunds should be cleared imm ediately
Four, all incentives due to MSMEs under various central and state schemes should be released immediately.
Five, banks should provide additional reconstruction term loans to MSMEs impacted by the lockdown, with Government of India offering a guarantee upto 20 per cent of the default.
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CII poll finds Rs 1,819 cr of unpaid dues to MSME members
A CII poll showed delayed payments of Rs 1,819 crore to about 450 of its MSME member companies, the industry body said on Monday.
Public sector or government departments including state departments owe MSMEs Rs 1,709 crore and the private sector also owes about Rs 110 crore to MSMEs, the quick survey revealed.
The sample CII poll showed that about 32 per cent of the outstanding to MSMEs have been delayed for more than 2 years and about Rs 895 crore are stuck in disputes. These need to be resolved soon to save the MSMEs from solvency, CII Director General Chandrajit Banerjee said.
Of the delayed payments amount, manufacturing contracts account for Rs 153 crore, services contracts account for Rs 723 crore and multiple sectors account for Rs 930 crore.
The CII suggested measures to alleviate the issue of pending payments to micro, small and medium enterprises (MSMEs) including tax refunds and incentives.
It said the government should monitor payment delays by CPSUs to MSMEs closely through a portal for complaints and ensure necessary funds are provided and utilised for this purpose.
Moreover, all PSUs and government departments both at the central and state-government levels must be encouraged or mandated to register themselves on TReDS platform.
TReDS is an institutional mechanism set up in order to facilitate the trade receivable financing of MSMEs from corporate buyers through multiple financiers.
In addition to overcome the delays in payments to MSMEs due to disputes all pending GST refunds should be cleared immediately, the chamber recommended.
It said all incentives due to MSMEs under various central and state schemes should be released immediately.
Banks should provide additional reconstruction term loans to MSMEs impacted by the lockdown, with the Government of India offering a guarantee up to 20 per cent of the default, CII said.
Finance Minister Nirmala Sitharaman on May 13 had announced that CPSEs and the government would clear payments of MSMEs in 45 days to improve their liquidity.
Let TReDS sabotage impair credit rating
At a time when India’s 6.5 crore micro, small and medium enterprises (MSMEs) struggle for finance, in fact, for survival, and the government can ill afford to make one extra paisa of expenditure on something for which an alternative source of funding is available, it makes eminent sense to make large buyers of MSME produce make prompt payment for these supplies. In theory, a mechanism exists for prompt payment for MSME supplies: the Trade Receivables Discounting System (TReDS). But its performance is below par. Making TReDS fully operational should be a priority.
TReDS is a platform on which large buyers, small companies and banks enrol, small companies list their invoices, large companies on which the invoices are raised authenticate them and banks take over the receivables from the small companies, paying them the invoice amount less a discount that reflects the creditworthiness of the large buyer. Sounds good in theory. In practice, there are an insufficient number and types of financiers: non-banking financial companies, large and small, must be present to cater to the smaller MSMEs that banks disdain to deal with. The government and government-owned companies, major buyers of MSME produce, are not all on TReDS. And large companies refuse to authenticate the legitimate invoices raised on them. Fixing the first two problems is straightforward. To fix the third, Sebi should direct rating agencies to recognise a company’s failure to authenticate invoices by suppliers as impairing their credit rating.
Such a move would articulate the same logic that lets non-payment of vendor dues trigger insolvency under the law. Big companies have access to formal credit. They should not enjoy free credit from small suppliers who pay extortionate rates of interest on their loans.
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COVID-19: Punjab National Bank organises webinar to promote its financial products on the TReDS platform
Punjab National Bank, India’s second largest public sector lender, conducted a live webinar titled ‘Mega MSME Outreach’ to connect with its MSME customers across the country and to address their challenges in the face of COVID-19 pandemic.
An important objective of the webinar was to educate its customers across the nation about the various products and services made available by the bank for their ease. Through the campaign ‘Each One Reach Ten Each Day’, more than 1.00 lac MSME customers are being contacted by the officials to update about the COVID scheme on daily basis. Through the online platform of Trade Receivables Discounting System (TReDS), MSME’s can avail timely credits against their bills, which helps in managing their cashflows efficiently. In addition, the bank has communicated with large number of MSME Associations, across the country seeking co-operation to educate the MSMEs under their ambit about the special schemes launched by the bank.
The webinar also informed the MSME participants about various hand-holding measures taken by the Government of India, Reserve Bank of India and Punjab National Bank. The webinar was hosted by CH SS Mallikarjuna Rao, MD& CEO, Punjab National Bank along with Executive Directors, Dr. Rajesh Kumar Yaduvanshi, Sanjay Kumar, Vijay Dube and Agyey Kumar Azad and was moderated by Vinod Jain, Chairman, Banking & Insurance Committee PHD, Chambers of Commerce & Industry.
Steps taken by the bank to aid existing borrowers and for giving boost to the MSME units are follow:
- Standby Line of Credit for MSMEs
- PNB COVID-19 Emergency Credit Facility (PNB- CECF)
- Campaign- Each One Reach Ten Each Day
- Liberalised Working Capital assessment (LWCA) model for MSME borrowers having Limits upto ? 5.00 Crore & above ? 5.00 Crore.
- Other Policy initiatives like restructuring of MSME Advances, Interest Subvention Scheme, TReDS, Mudra Loan Products, Credit Guarantee Trust for MSME’s, PSB loans in 59minutes, among others.
Executive Directors said that, “The pandemic has posed fresh challenges for the country’s economy, causing severe disruptive impact on both demand and supply side elements. This has potential to derail the growth of the economy in the current and coming fiscal years. With the proactive approach of the bank, we hope the outreach program would help our customers to understand the customised new product facilities, benefits and special schemes offered by the bank to cope up with the crisis”
In the backdrop of nationwide lockdown, the bank has uniquely organised the webinar to address the liquidity requirement of its customers through the online platform and it has witnessed a humongous response from our borrowers across the country, marking it a great success.
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Have opened emergency credit line for MSMEs, eased working capital norms: PNB
Punjab National Bank on Wednesday said it has opened an emergency credit line for the MSME sector to help it tide over liquidity issues amid the coronavirus crisis.
It has also liberalised the working capital assessment (LWCA) model for MSME borrowers having limits of Rs 5 crore and above, the state-owned lender said at a webinar hosted with industry body PHD Chamber to address the issues of micro, small and medium enterprises.
There is a facility of standby line of credit for MSMEs as well as PNB COVID-19 Emergency Credit Facility (PNB-CECF), the bank said.
There are also other policy initiatives like restructuring of MSME advances, interest subvention scheme, TReDS, Mudra loan products, Credit Guarantee Trust for MSMEs and PSB loans in 59 minutes, it added.
The bank’s MD and CEO SS Mallikarjuna Rao said in the backdrop of the nationwide lockdown, the bank has organised the webinar to address the liquidity requirement of its customers through the online platform.
This forms a part of its ‘Mega MSME Outreach’ aimed at connecting with its MSME customers across the country and to address their challenges. He said the bank has witnessed a humongous response from borrowers across the country through this outreach programme.
The public sector lender said that it has been contacting more than 1 lakh MSME borrowers through its ‘Each One Reach Ten Each Day’ initiative to update them about its schemes on a daily basis.
Through the online platform of Trade Receivables Discounting System (TReDS), MSMEs can avail timely credits against their bills, which helps in managing their cashflows efficiently, PNB said.
In addition, the bank has communicated with large number of MSME associations across the country seeking co-operation to educate the companies under their ambit about the special schemes launched by the bank.
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MSME Relief: Don’t leave it too late
The government must think big and swiftly come up with a rescue package for micro, small and medium enterprises (MSMEs). They have to pay wages, rent and interest on their loans.
Measures such as emergency credit lines offered by banks to SMEs, and concessional 5% interest for MSME loans under the Sidbi Assistance to Facilitate Emergency Response against Covid-19 are welcome but do not go far enough.
The sector gets only about 15% of their credit from banks and rely on assorted shadow banks and informal sources for the rest. They need interest-free credit with credit guarantee from the government.
Even better would be equity. Equity needs to be serviced only when profits are made. Instead of interest-free loans and loan guarantees, a State-owned special purpose vehicle should invest equity in all MSMEs that have a decent track record.
Sidbi’s venture fund can invest in enterprises without a track record. These stakes can be sold in the future when the enterprises turn profitable, with the promoter groups being given a call option or the right of first refusal. The benefit would be two-fold.
One, it would lead to the formalisation of the MSME sector that now has around 6.3 crore firms, of which only a small fraction are registered under GST. These firms will have to pay wages and statutory dues to their workers. This might put off enterprises whose competitive edge is that they pay neither taxes nor statutory dues. However, such companies’ credit comes at a high cost, from informal sources.
Maintaining books of accounts and a stake from a public sector investor would enable MSMEs to access bank credit at lower rates, by far. This could more than compensate for the extra costs of becoming formalised. Banks should lend to MSMEs.
The need is also to create an active bond market to let some MSMEs raise debt directly and also through non-banking financial companies. Other needed steps include clearing all outstanding public sector dues to MSMEs and mandatory listing on the Trade Receivables Discounting System (TReDS) of all firms and banks.
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Lockdown has thrown up huge challenges for trucking business
Apart from getting truck drivers and warehouse employees back to their job, logistics operators have to grapple with working capital needs and supply chain inefficiencies
A lot has been spoken about the effects of Covid-19 on the economy. The government, large corporates, and the MSME sector are keen to reboot activities that have come to a halt due to the lockdown. Logistics, including transportation, warehousing, order management, and other value-added activities, would be critical for the revival of economic activities. One may have to look at numerous aspects of each of the logistics functions.
According to a report, over 20 per cent of the trucks are stuck on the roads across the country. Drivers and support personnel could be anywhere around 30 lakh. Most of them face a loss of income. One can categorise trucks as those with large operators (either 4PL or 3PLs) as part of a contract engagement and those running as market vehicles.
It is important to note that their commercials for the load on the road would not have factored Covid. Hence, they, including project cargo, will have to renegotiate the same. Maybe one learning is to include a variation or compensation clause in contracts under force majeure conditions.
Secondly, there are vehicles owned or placed with leading fourth-party and third-party logistics service providers who are on long hauls across the length and breadth of the nation. Such vehicles typically have aggregators (also known as market intermediaries or brokers) who have contracted a group of vehicles and placed under their aegis. They will bill with the 3PL operator and, in turn, pay the vehicle owner who bears all the operating expenses.
When the vehicles are on the move, they have designated pit-stops and other support mechanisms every 300-600 km in all major routes. When the lockdown was announced, most of the vehicles could park in the pit-stops, and the drivers were reasonably taken care of by the owners. When the system came to a halt, the number of vehicles required to be parked increased phenomenally, and the drivers used nearby villages as well to park. However, the drivers did not have the wherewithal to stay on and take care of the vehicles.
Once the vehicles resume operations, money for variable expenses to continue travel would be required. This needs to be provided at whichever place the drivers are. One may argue that with digital pay and ATMs, they may be able to handle the same. If not enabled till now, the contractors of the vehicles in coordination with 3PL operators may have to support the drivers and vehicle owners. Else, cash transfer can be made once they find nodal points.
Cash required would be higher than during normal business because once the clog is released, traffic may pile up at terminal points. There is likely to be a delay in turnaround time. It is estimated that the delay would be anywhere between five and seven days for the first four weeks.
In large projects, it would take time to mobilise the unloading contractors. In such projects, delays can go up to 30 days with the pile-up of vehicles. There are likely to be delays in organising return loads as well. These shouldn’t be a problem for 3PL provided the business conditions return to normal quickly. Hence, 3PL operators will have to provide for asset inefficiency. One may, however, have to see how the costs are recovered over time.
In the overall freight payment system, after a trip is completed, 3PL operators raise an invoice. As the truck delivers, the proof of delivery (POD) is signed and returned by the customer. Then an invoice is raised. It takes three to four weeks for bills to be consolidated and to raise an invoice. The customer takes 45-60 days to pay. After delivery, it takes 60-85 days for the payment of service. An advance of 60-70 per cent is paid by 3PL to drivers. Things are likely to worsen until the efficiency parameter improves as under normal business conditions.
Policymakers must bring in alternative systems. One may suggest dynamic discounting or factoring of bills, which could be expensive for these operators. Supply chain finance is one possible solution that is yet to evolve in India.
The emotional health of many truck drivers have been affected . A lot of ground-level support through counselling will be required. NGOs and professionals can be engaged in providing comfort to this group of employees and getting them back on board.
In India, the rail transport is supply-driven. The government and related agencies use rail for the movement of crude and petroleum, coal, minerals, and so on. Since the user companies are not operating in full capacity, it will return to normalcy. It is likely that the railways is using the lockdown for optimal redistribution of foodgrains. Analytics can be deployed for better capacity utilisation of cargo movement when the lockdown is in force, and passenger movement is restricted.
Ports have been operational, but the business may not be “as usual”. This sector again requires a reboot for efficiency loss as it has been unutilised for some time and would continue to be less utilised for some more time. Further, ports may need working capital for the restart of business. Also, there is going to be bunching of businesses for some time once the lockdown is lifted, leading to increase in costs.
The impact of the lockdown on warehousing operations can be seen by analysing three important aspects of warehouse management — utilisation of space, equipment, and employees. Space utilisation is dependent on stock availability and movement of stock. 3PL operators are likely to be affected to the extent that both space utilisation and turnaround would be plugged into their business model.
Their clients will be paying a basic rate for space and an additional amount for handling and despatching. Since there is no activity, 3PL operators could be incurring expenses, including depreciation and maintenance of equipment and labour, as mandated by the Ministry of Labour and enforced by State governments as well. It must be seen if they could pass them on to their clients.
Inventory management challenges are likely as raw materials, components, and work-in-progress (in case of engineering industry) and finished goods pile up by a month’s level. Stock per se is not an issue. There is another likely component of inventory cost. Such costs could arise because of adjustment for component and material availability during the revival period. This problem is likely to be more common in the components-based industry, where some critical low-value components are to be supplied by MSMEs.
Such a situation can lead to several adjustments in the production schedule, and more frequent change-over for want of the right set of components. Two areas that need focus would be to check the production plans and ensure appropriate inventory adjustments and ordering for smooth system flow.
Second, MSMEs that supply critical components or involved in product support need to be financed on priority. They must receive funds through the supply chain finance mode or a larger entity for efficient deployment of funds.
The logistics sector may have formidable challenges in the trucking business. Areas that need attention are: many of them may not have working capital limits and must be discounting bills. One may have to see how such costs can be addressed. Second, capital may be required to cover inefficiencies which occur during this period. One may have to study the incidence and impact of such inefficiencies
In the supply chain, most of the time, inefficiencies are passed on to the customers. When demand is sluggish, such a luxury is not available. How much can costs be absorbed and capitalised and managed through reduced cost of capital? Lastly, the logistics operators may have to get workers, namely truck drivers or warehouse employees, back to their job.
The writer is Professor, Operations Area, IFMR Graduate School of Business, Krea University. The views are personal
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Opinion | How the economy could roar to life after the lockdown is lifted
In less than a week, India will be looking forward to emerging from the lockdown that covid-19 forced upon it. Having persuaded a country of over 1.3 billion people to lock themselves indoors, with admirable success, the government now has to do an about-face. It has to cajole and encourage millions of Indians to cross the Lakshman rekha (do-not-cross line) so that millions of others can continue to stay safely and sustainably indoors. For that, I would suggest the following:
First, the government should announce a package to provide cash to businesses without many restrictive eligibility criteria—soft loans with a repayment schedule starting a year from now—but impose other long-term quid pro quo terms such as large businesses mandatorily using the Trade Receivables Discounting System (TReDS) to discount suppliers’ bills. Government departments must set an example and encourage their suppliers to discount their invoices through this system.
The KV Kamath Committee report on the financial architecture of the micro, small and medium enterprises (MSME) sector had recommended that the fulfilment of Know-Your-Customer requirements by firms registered with the TReDS be deemed as recognition of their MSME status. This is essential so that a corporate entity is not able to escape the penalty for a payment delay on the plea that it did not know the MSME status of a payee firm.
Further, Mani Iyer, working with TVS Investments, makes an excellent suggestion in his personal capacity. As soon as an MSME is registered on the platform, a notice shall go to all companies to which it supplies materials of its registration. Once this is done, even if the MSME does not wish to factor its bills, payment in full by a corporation can be effected through the TReDS platform. This creates a documentary trail, which can be used to establish an operational and financial track record of MSMEs. Suitable provisions are available on the platform. Currently, more than 100 public sector enterprises (PSEs) are registered on the Receivables Exchange of India Ltd (RXIL), a TReDS platform, but invoices are discounted/factored for only 14 PSEs.
Second, ways must be to found to lock in the current price of oil for the next few years. Entering long-term contracts at negotiated prices with select supplier countries will confer an economic advantage and offer political leverage. The information gains of knowing India’s oil import bill and customs duty receipts for two years will be inestimable. Simultaneously, construction should begin to create extra oil storage capacity for up to six months. This activity would also serve as a stimulus.
Third, set up a special purpose vehicle (SPV) like Temasek of Singapore to park all government stakes in PSEs and begin monetizing it by issuing securities against them. The proceeds from the sale of such stakes could be invested in important sectors (See by Andy Mukherjee). First in line for this investment should be healthcare and health infrastructure.
Fourth, there is much talk of attracting companies looking to diversify out of China. More important than getting a few things right is not doing anything wrong. For instance, the standard approach of promising plug-and-play facilities, unless they already exist in special economic zones, is unlikely to be effective. Also, one arm of the government should not undermine the efforts of another. Take the case of India’s phased manufacturing programme (PMP) for mobile devices. By all accounts, it is a remarkable success. The number of units making mobile phones and accessories rose from just two in 2014 to over 260 in 2019, turning India into the world’s second-largest mobile phone manufacturer. Some 95% of these units are assembled locally. Progress further up the value chain, however, has not been satisfactory.
Even as the government was pursuing PMP, India signed free trade agreements with Vietnam and the Association of Southeast Asian Nations, which did not account for the PMP’s goals. The agreements offset the differential duty on components and led to a 33% jump in component imports from Vietnam to $800 million in 2018-19, a figure that topped $1 billion in just the first half of 2019-20. Such lack of coordination needs to be avoided.
Fifth, tech billionaire Sridhar Vembu, who founded Zoho Corp, suggested this for the long-term: “The Government of India should think of an autonomous body like the Election Commission headed by a strong and competent individual that identifies the 100 or so strategic technologies and industries and annually ranks Indian vendors against the global best and if this body is not corruptible, then companies will start to take the ranking seriously. India must benchmark itself against the best in the world." Any government concession or incentive, including any of the fiscal kind, must be linked to the performance of businesses on these benchmarks.
Post-lockdown, if the Indian government could re-imagine and relaunch itself thus, then the hardship caused by the virus could become a distant memory soon.
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Fault for failure won’t be in our stars
The government has to think big and bold when it comes to policy to counter the direct and indirect economic fallout of the Covid-19 pandemic. There is little point in shielding the populace from a fatal viral attack if they are then to be crushed under a collapsing economy. This is not the time to worry about fiscal deficit targets and what the rating agencies would say. This is the time to save the economy by spending big and show the world how a big economy can be salvaged by decisive action and force rating agencies and other finger-wagging busybodies to relearn their economic lessons.
This newspaper had suggested a Rs 17.5 lakh crore stimulus package, amounting to nearly 9% of GDP, in a page 1 graphic on April 18, some of it already budgeted. That is the minimum the government should be looking at, to prevent acute distress and resultant social unrest and to boost the economy, already slowing before the onset of the pandemic.
The money spent would pay for itself, in economic and political terms. Failure to spend big now could trigger another string of loan defaults by companies with stressed finances and add another big pile of bad debt to the load under which Indian banks have been groaning for some time now. Offer credit guarantee and interest subvention for loans to micro, small and medium enterprises (MSMEs). Let the National Investment and Infrastructure Fund issue a quasi-sovereign bond abroad, and use the money to buy out the loans, in return for equity, of stalled and bankrupt infrastructure, including real estate, projects, and organise their completion.
Give state governments all the GST compensation they are due, for they, too, need to spend. Mandate all companies to join the Trade Receivables Discounting System (TReDS), to ease MSME’s liquidity pain with bank credit underwritten by the books of large companies.
And let RBI monetise borrowing by the Centre and the states. RBI should, too, buy bonds issued by companies and non-banking financial companies that specialise in lending to small businesses. Thinking big is the only way to win big.
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TReDS operators seek clarity on moratorium for invoice discounting
MUMBAI: Distressed companies using the invoice factoring platform TReDS are staring at potential defaults, as the working capital availed by their MSME suppliers against future receivables are not being considered for the central bank’s moratorium benefits.
Lenders say these loans don’t qualify as these are neither in the nature of cash credit, nor overdraft, people aware of the matter said.
TReDS operators are, in turn, suggesting the deferment be allowed on the grounds that these finances are categorised as ‘bullet repayments’ availed as working capital advances by MSMEs and corporates.
Trade Receivables and Discounting System (TReDS) is an electronic bill discounting platform regulated by RBI and endorsed by the central government to provide MSME ‘suppliers’ of corporate ‘buyers’ instant payments for future receivables to prevent delay in payouts for cash-strapped small businesses.
Banks and NBFCs finance invoices at competitively priced interest on a bidding basis on the platform, which then gets structured as short-term loans to the corporates with a maximum maturity period of 180 days.
The three operators of the TReDS platform — Sidbi and NSE-owned RXIL, Mynd Solutions-owned M1xchange and Axis Bank-owned Invoicemart — have now sought clarity on the matter with the finance ministry, the RBI and the MSME ministry. They are seeking extension for corporates whose repayment tenors are due between March 1, 2020 and May 31, 2020 citing “massive disruption in the supply chain ecosystem”. “We have received multiple requests from the existing corporate buyers on our platforms to extend the tenor of the invoices which are due,” said a letter sent to the RBI on April 1 and then again on April 8.
RBI governor Shaktikanta Das on March 27 announced a slew of measures, including a moratorium on loan repayments, to provide relief to India’s distressed borrowers. Separately, these operators also wrote to the Department of Financial Services and MSME ministry seeking special relief to improve TReDS’ outreach.
“In any crisis, the most vulnerable and affected are the ones at the bottom of the pyramid and TReDS deals with such individuals and entities. The most vulnerable are the MSME owners and their employees who are likely to face extreme financial crisis,” the letter written to top officials of DFS and MSME ministry said.
ET has seen copies of these letters.
The TReDS portal had traded receivables worth Rs 14,000 crore until December, as per data sourced by ET. “While some banks have passed on the moratorium benefits to corporates on the platforms, several others have refused, citing absence of explicit directions by RBI,” said a person.
TReDS Route to Discourage Layoffs
The best way for the government to induce employers to not lay off workers rendered redundant by the Covid-19 slowdown and lockdown would be to provide greater working capital relief to small companies by operationalising and fully realising the potential of the Trade Receivables Discounting System (TReDS). It should adopt a carrot-and-stick approach. To ensure that large companies release the payments due to their small-scale suppliers without delay, they must be mandated to come on to the TReDS platform. Small suppliers raise their invoices on their large buyers, when both the buyer and the seller are on the platform, participating banks carry out factoring, that is, take over the bill collection from the small suppliers and pay them their dues upfront, with adiscount pegged to the creditworthiness of the large company that now owes the money to the bank.
Failure to come on to the TReDS platform should be treated as an offence, and incentives offered for compliance. This would sharply reduce the cost of working capital for small companies. The cost of financing is based on the risk profile of the large buyer. Small businesses would require less working capital — they would not have to wait for months to collect their dues, as has been the practice. Further, they would get their money from banks, far cheaper than their traditional, non-bank sources of funds. In bill discounting, recourse is on the small company, and the discount rate is based on the small company’s risk profile. There is no incentive, further, for the big company to pay up. Big companies have been reluctant to accept factoring. They must be forced to, including government-owned ones.
Payment of provident fund contributions by the State could be linked to being on TReDS and not laying off workers.
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RXIL digitizes its MSME onboarding using Jocata GRID, trade receivables exchange platform
Receivables Exchange of India (RXIL) - country's first trade receivables exchange platform (TReDS) has implemented Jocata's proprietary platform Jocata GRIDTM to enable digital onboarding for MSMEs.
The platform provides a multi-channel, paperless, digital onboarding experience to MSMEs which enables them to access finance on the RXIL TReDS platform in a substantially shorter time.
Key features of this implementation include digital verification of entity and individual identifiers (viz: GST, PAN, UDIN), automated decisioning, auto-population of customer information and digital documentation.
Jocata GRIDTM is deployed on cloud and uses modular micro services driven framework, which ensures scalability and flexibility to add digital regulatory interventions like Video KYC.
"With Jocata's onboarding solution, prospective MSMEs will be able to complete their digital onboarding in a few minutes by visiting the RXIL website and furthermore RXIL's Relationship teams are equipped with a responsive web-enabled module to fulfill MSME digital onboarding, said Ketan Gaikwad, MD, and CEO of RXIL Ltd., on its successful launch.
"Given the growth that RXIL has witnessed in the last three years and the potential that lies ahead, it was imperative for us to launch a reliable and scalable digital solution to onboard our MSMEs. Jocata's solution provides us with that impetus and further build on the scale that we have already achieved," Gaikwad added.
"Our association with RXIL and the launch of this onboarding platform aligns with the need to help RXIL onboard SMEs at scale and meet the end SME users financing goals. We are very happy to see this initiative go live so quickly," said Prashant Muddu, CEO of Jocata.
This story is provided by NewsVoir. ANI will not be responsible in any way for the content of this article.
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This Mumbai company helps SMBs finance invoices, has transacted Rs 3.3k Cr in 3 years
Micro, small, and medium enterprises (MSMEs) and small businesses are the backbone of the Indian economy but they face recurring challenges in receiving payments for the goods or services they supply. In other words, they struggle to convert trade receivables into liquid funds.
The Reserve Bank of India (RBI) decided to set up an institutional mechanism for financing these trade receivables. It released guidelines for setting up and operating a system known as Trade Receivables Discounting System (TReDS).
The TReDS would link MSME sellers, corporate buyers, and financiers (banks and NBFCs) on a common platform. It would facilitate discounting of invoices and bills of exchange.
The RBI then granted licences to three TReDS platforms: M1xchange, RXIL, and A.TReDS.
One of the first TReDS platforms to start operations was RXIL (Receivables Exchange of India Ltd).
It began operations in January 2017 and has discounted over 81,000 invoices, with the total transacted value crossing Rs 3,331 crore, says RXIL’s MD and CEO Ketan Gaikwad.
“We have 445 corporates (including PSUs), 1,521 MSMEs, and 35 banks and NBFCs on board,” he tells SMBStory.
Mumbai-headquartered RXIL is a joint venture between Small Industries Development Bank of India (SIDBI), the apex financial institution for promotion and financing of MSMEs in India, and National Stock Exchange of India Limited (NSE), the country’s premier stock exchange.
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Water Green Shoots With Vital Credit
The economy is turning over a new leaf, or so claims FM Nirmala Sitharaman, who cites several green shoots. Higher foreign investment inflows, direct and portfolio, rising GST collections, faster accumulation of forex reserves and the buoyant stock market all indicate sanguine investor expectations but have accompanied quarter after quarter of slow growth. Only two of the shoots in question are genuinely green: rising Purchasing Managers’ Index for manufactures and for services. The way forward is to proactively policy-induce heightened credit offtake for trade and industry, including by streamlining the Trade Receivables Discounting System, or TReDS, a factoring service that has the potential to revolutionise trade credit for micro, small and medium enterprises (MSMEs).
Large corporates, government departments and public sector undertakings (PSUs) tend to delay payments to MSMEs, forcing these companies to borrow at usurious rates from informal credit markets. TReDS is supposed to boost the financing of MSME receivables by banks. In her budget speech, the FM had sought to amend Factoring Regulation Act, 2011, to enable non-banking financial companies (NBFCs) to extend invoice financing to MSMEs on TReDS; the move needs expediting.
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GeM inks MoU with TReDS platform RXIL and Arteria Technologies
New Delhi, Feb 4 (KNN) The Micro Small and Medium Enterprises (MSMEs) will be benefitted as Government E Marketplace (GeM) has signed a Memorandum of Understanding (MoU) with TReDS platform RXIL and Arteria Technologies Pvt. Ltd.
Speaking on the ocassion, Ketan Gaikwad, CEO, RXIL Ltd., said, “Close to 53 per cent of transactions on GeM (Govt. E Marketplace) are initiated by MSMEs. Finance Minister announced during this year’s union budget to increase the turnover of GeM from the current levels of INR 50,000 crore to INR 3 lakh crore. For the proposed turnover mandate, it is necessary to have the alternate financing mechanism in place, the integration between Trade Receivables Discounting System (TReDS), and GeM as suggested in the UK Sinha Committee report will allow PSUs/Govt. departments to do procurement without blocking their own funds, while ensuring timely payments to MSMEs.''
''The MoU will immensely benefit, MSMEs and CPSEs/PSUs/Govt Departments while achieving the proposed goal of INR 3 lakh crore throughput,” he added.
he Economic Survey 2019-2020 stated that currently 57,531 MSME sellers and service providers are registered on the GeM portal. Central PSUs are required to procure at last 25 per cent of their total purchases from MSMEs and PSUs have procured 28.26 per cent of total procurement from MSMEs, crossing the minimum threshold of 25 per cent.
Gaikwad, further said that TReDS has become a stable payment system with over Rs 15,000 crore worth of throughput across the platforms. The government has seen the effectiveness of TReDS in ensuring a stable supply of credit to MSMEs, the MoU is a step in the direction of extending its benefit to a larger universe of MSMEs.
Sriram Kanuri, CEO, Arteria Technologies Pvt. Ltd., remarked on the landmark association as a proud moment.
''We are excited to extend the expertise and the existing association with TReDs by deploying FinessArt for GeM as well and support the Digital India journey and further the cause for MSME sector,'' he said.
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Govt takes first step towards Rs 3 lakh crore-turnover target proposed in budget for its e-marketplace
Ease of Doing Business for MSMEs: GeM currently has 3.25 lakh sellers listed out of which 70,783 sellers are micro and small enterprises contributing 52.50 of the total order value on the platform.
Ease of Doing Business for MSMEs: Business-to-government e-commerce portal Government e-Marketplace (GeM) on Monday announced partnership with Trade Receivables Discounting System (TReDS) platform operator Receivables Exchange of India Ltd (RXIL) to help government departments, public sector units, CPSEs etc. to finance their payments to MSME sellers of goods and services. RXIL — a joint venture between SIDBI and National Stock Exchange is among the three licensees for operating the TReDS platform. Invoicemart and M1Xchange are the other two operators.
The development comes days after the Finance Minister Nirmala Sitharaman proposed increasing the turnover of GeM to Rs 3 lakh crore. “GeM is moving ahead for creating a unified procurement system in the country for providing a single platform for procurement of goods, services and works. It offers a great opportunity for MSMEs,” the minister had said. GeM currently has 3.25 lakh sellers listed out of which 70,783 sellers are micro and small enterprises contributing 52.50 of the total order value on the platform.
Financial Express -
Government asks top PSUs to bring vendor network on TReDS
The government has ordered its top companies to bring in their entire vendor network comprising thousands of suppliers on to the TReDS, an electronic trading platform to trade receivables, as it aims to unclog the payment pipelines that’s squeezing funding for small enterprises
Hindustan Aeronautics, ONGCNSE 1.86 % and Indian OilNSE 0.38 % are among scores of firms that have been told by the Department of Public Enterprises to ‘register immediately’ their vendors on the network or face penal action, said people familiar with the matter.
“All CPSEs must ensure that the payments to MSE vendor be made using online mode within the stipulated time period of the contract and not more than 45 days in any case,” read the circular from the DPE. “Though a number of CPSEs have already registered on the TReDS portal, there are still some that are yet to register.”
The government’s latest whip comes after small and medium enterprises began blaming non-payment by those companies that obtained supplies from them for their financial crunch. Because of the delay in payments, small firms are not able to meet their working capital requirements and at the same time banks’ risk aversion has led to drying up of funds. Finance minister Nirmala Sitharaman promised that the government would clear dues to vendors quickly as non-payment was pulling down economic growth to a multi-year low. In a bid to make these transactions more transparent, the government had introduced TReDS for electronic settling of routine dues in 2017. Micro and small businesses on the same portal can also access working credit against the transaction invoice from banks registered on the platform. According to the one of the CEOs of the three operating TReDS service providers, “majority of buyers register only for compliance purpose and without any intent to use the platform.” Several of these larg ..
Right on, onward to universal factoring
The government has done well to ask all public enterprises to be present on an online trade receivables discounting platform and to make payments online. If there is one reform that can spell serious gain for small industry, financial inclusion and the exchequer, it is to make it an offence, with culpability pegged on the chief executive officer and members of the board, for large companies to either not enrol in a TReDS platform or, having registered, decline even a single transaction on the platform. TReDS is short for Trade Receivables Discounting System, an online platform on which small industry, large companies to which small companies supply goods, and banks interact to carry out factoring.
Factoring is, of course, different from and superior to bill discounting, from the point of view of the small company. When a small vendor raises a bill on a large company to which it supplies stuff, a bank might be willing to discount the bill and grant the company immediate liquidity. However, if the large company on which the invoice has been raised does not pay, the bank will penalise the small company, to which it lent money accepting the bill as collateral. In factoring, the bank takes on the responsibility for collecting the payment from the large company — the credit relationship is between Big Bank and Big Corp. The small vendor not just gets money upfront, but gets it cheaper, because the cost of financing is based on the risk profile of the large buyer, unlike in the case of bill discounting. If all small companies gain access to factoring, it would revolutionise trade credit. For that, services, too, must be enrolled and non-banking financial companies (NBFCs) that have expertise in dealing with tiny or niche clients must be roped in.
But the biggest challenge is to overcome the reluctance of the large buyers to accept factoring, and give up the freedom to bully their small vendors, a freedom they take for granted. The transparency TReDS payments bring would make GST collections boom — an incentive for the State to make this mandatory, and not just in form.
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KASSIA organises an awareness program on TReDS to benefit MSMEs
Bangalore, Jan 27 (KNN) Karnataka Small Scale Industries Association (KASSIA) has organised a programme on Trade Receivables Discounting System (TReDS) for the benefit of Micro Small and Medium Enterprise (MSME) suppliers.
Speaking on the occasion, Ketan Gaikwad, Managing Director & CEO, Receivables Exchange of India Ltd., (RXIL Trade Centre), mentioned that the Government was extremely keen on ensuring that the delays in payments to MSMEs by the buyers are reduced as much as possible.
''This was necessary as the MSMEs form the backbone of the Country’s economy and their survival and growth is extremely important for the economic development of the Country,'' he added.
He also stated that the platform was slowly gaining the popularity and government had issued clear guidelines for buyers to onboard the platform adding that ''Government was closely monitoring the transactions on the platform to ensure the purpose for which it is set up is achieved.''
However, he remained optimistic that more and more MSMEs would participate in the TReDS platform so as to derive the maximum benefit from the platform.
The event also witnessed Siddalingappa B Poojari, Joint Director, District Industries Centre, Bangalore Urban, Ulagiyan Balasubramanian, AGM, SIDBI and Chandra Mouli, DGM, SIDBI.
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