RBI Grants MHP Exemption for Receivables Transfer in Secondary Market Operations

The Reserve Bank of India (RBI) issued a notification on December 28, 2023, introducing a significant exemption in the Master Direction concerning the transfer of loan exposures. The notification aims to encourage the development of secondary market operations related to receivables acquired through the 'factoring business' as defined under the Factoring Regulation Act, 2011.

Key Changes and Conditions

Under this new provision, eligible transferors dealing with such receivables will now be exempted from the Minimum Holding Period (MHP) requirement, given they meet specific criteria:

1. Residual Maturity Limit: The transferred receivables should not have a residual maturity exceeding 90 days at the time of transfer.

  

2. Credit Appraisal:The transferee must perform a proper credit appraisal of the drawee of the bill, adhering to the specifications outlined in clauses 10 and 35 of the directions.

 Amendment in MD-TLE

To implement this exemption effectively, the RBI has introduced a suitable proviso to clause 39 of the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021.

Continuity of Other Provisions

It's essential to note that while this exemption modifies the clause related to the Minimum Holding Period, all other provisions of the MD-TLE remain unchanged and applicable.

 Conclusion

This move by the RBI is anticipated to stimulate and facilitate the operations within the secondary market concerning the transfer of receivables, specifically acquired through the factoring business. It provides a more conducive environment for such transactions while ensuring adherence to specified conditions and regulations.

(Vaibhav Chaturvedi), Chief General Manager, RBI, conveyed these amendments in the notification, signifying the RBI's commitment to fostering a conducive financial ecosystem.