What changed
RBI added a proviso to clause 39 of the Master Direction on Transfer of Loan Exposures (MD-TLE), exempting eligible transferors from MHP requirements when transferring receivables acquired under factoring business. The exemption applies only if residual maturity at transfer is 90 days or less and the transferee performs proper credit appraisal of the bill drawee.
What it means for you
Banks and NBFCs engaged in factoring can now sell short-term receivables (≤90 days residual maturity) without waiting for the MHP, boosting liquidity and secondary market activity. This eases capital release for factoring portfolios, but lenders must ensure transferees conduct due diligence on drawees to maintain credit quality.
What you must do
- Review your factoring receivables portfolio to identify eligible transfers with residual maturity ≤90 days.
- Ensure transferee entities conduct proper credit appraisal of the drawee before acquiring receivables.
- Update internal policies and systems to reflect the MHP exemption for factoring transfers.
- Train staff on the new conditions to avoid non-compliance with other MD-TLE provisions.
Who it affects
Scheduled Commercial Banks (excluding RRBs), All-India Financial Institutions, Non-Banking Financial Companies (including HFCs), Entities engaged in factoring business
What is the Minimum Holding Period (MHP) exemption for factoring receivables?
RBI exempts transfer of factoring receivables from MHP if residual maturity at transfer is ≤90 days and the transferee conducts credit appraisal of the drawee. This applies to eligible transferors under the MD-TLE.
Does this exemption apply to all loan transfers?
No, it only applies to receivables acquired as part of factoring business as defined in the Factoring Regulation Act, 2011. Other loan transfers still require MHP compliance.
What conditions must be met for the MHP exemption?
Two conditions: (1) residual maturity of receivables at transfer must not exceed 90 days, and (2) the transferee must conduct proper credit appraisal of the bill drawee before acquisition.