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Authors: Mr. Anjan Dasgupta (Partner), Mr. Avinash Kumar Khard (Partner) and Ms. Roochi Loona (Partner)
Background:
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- Earlier this year, the Reserve Bank of India (“RBI”) had released the Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026 on April 08, 2026 (“Draft TReDS Directions”) for comments and inputs from all stakeholders.
- Pursuant to notification dated June 23, 2026 (RBI/DPSS/2026-27/406), RBI has issued the Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026 (“Master Directions TReDS”).
- The MasterDirections TReDS were issued under Section 18 read with Section 10(2) of the Payment and Settlement Systems Act, 2007, and have come into effect from the date of notification.
- The Master Directions TReDS will be applicable to entities authorised by the RBI to operate the TReDS platforms under the Payment and Settlement Systems Act, 2007.
- Previously, the Guidelines for the Trade Receivables Discounting System (TReDS), 2014 and the circular on Expanding the Scope of Trade Receivables Discounting System dated June 07, 2023, governed the regulatory framework for TReDS.
Key Features:
- Applicants seeking authorisation to set up and operate a TReDS platform must maintain a minimum net worth of INR 25 crore on an ongoing basis, supported by a certificate from their statutory auditor.
- Existing authorised entities have been given time up to March 31, 2028, to bring their net worth requirements in line with the new norms.
- Platforms must put in place validation mechanisms to ensure that a seller uploading a factoring unit is a bona fide Micro, Small and Medium Enterprise (“MSME”), and that funds due to the seller are credited only into the seller’s own bank account.
- Eligible participants on the platform now formally include sellers, buyers, financiers, insurance companies, and the Credit Guarantee Fund Trust notified by the Government of India. Financiers may avail credit guarantee cover for exposures undertaken on TReDS from any such notified credit guarantee fund trusts. The draft directions had limited this cover to the National Credit Guarantee Trustee Company Limited (“NCGTC”).
- The TReDS platform is required to ensure that participation related master agreement is executed and the same includes the buyer’s obligation to pay and the seller’s obligation in respect of goods and services.
- ‘Bidding’ has been formally recognised as a core platform function, alongside uploading, accepting, discounting, and settlement of factoring units.
- The discounting process now carries 3 operational obligations for the platform: (i) receiving bids from multiple financiers in a transparent manner; (ii) providing intimation to banks holding working capital / cash credit accounts of buyers and sellers; and (iii) formally serving a notice of assignment on buyers in favour of financiers – it should be noted that this requirement is in addition to the existing requirement to file the assignment of receivables with the central registry (CERSAI) under the Registration of Assignment of Receivables (Reserve Bank) Regulations, 2022.
- Financiers may avail insurance facilities for TReDS transactions, provided that the insurance premium is not levied on the seller. Additionally, such credit insurance cannot be treated as a Credit Risk Mitigant to avail prudential benefits. Financiers may separately avail guarantee cover in respect of factoring units credit guarantee fund trusts set up by the Government of India.
- Factoring units discounted under TReDS shall be strictly “without recourse” to the sellers. Thus, defaults by buyers will no longer be the responsibility of the seller or the platform. There is no longer an option for set-off regarding the quality of goods or otherwise by the buyers.
- The platform must secure from the seller a declaration that the underlying goods/services are not charged to any other financier or bank, and that no other financier has extended finance against the same factoring unit. The platform is also responsible for carrying out customer due diligence of buyers, in accordance with the Reserve Bank of India (Commercial Banks – Know Your Customer) Directions, 2025.
- The platform may also enable further discounting / re-discounting of the discounted factoring units by the financiers, resulting in its assignment in favour of other financiers. Such transfers shall be subject to applicable provisions of RBI (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025 dated November 28, 2025.
- The Master Directions TReDS also stipulate certain annual compliance requirements:
- submission of audited net-worth certificates on an annual basis and a system audit report, per RBI Letter DPSS.CO.OD.No.1325/06.11.001/2019-20 dated January 10, 2020;
- submission of monthly TReDS statistics by the 7th of the subsequent month;
- a declaration and undertaking by any newly appointed director, as and when a change takes place in the Board.
DSK Comment: MSMEs have long been integral to India’s growth trajectory, contributing significantly to both economic development and social advancement. Despite their importance, MSMEs have historically faced challenges in accessing timely and adequate finance, particularly in monetising their trade receivables. To overcome this challenge, the RBI has, authorised setting up of the TReDS platforms in India, with the objective of facilitating the financing of trade receivables of MSME sellers.
The Master Directions TReDS have been issued not only to streamline capital requirements for authorised entities and other non-bank PSOs, but also to simplify the MSME seller onboarding process and permit financiers to avail credit guarantee cover for exposures undertaken on TReDS.
Disclaimer: This update is general in nature and is not intended to be a substitute for specific legal advice. Please contact the author(s) for specific legal advice in this regard
