**Policy Summary: MHP Exemption for Transfer of Receivables in Factoring Business**
This policy, issued by the Reserve Bank of India (RBI) on December 28, 2023, under reference number RBI20232499 DOR.STR.REC.6021.04.048202324, provides an exemption from the Minimum Holding Period (MHP) requirement for the transfer of receivables acquired as part of factoring business. This exemption applies to all Scheduled Commercial Banks (excluding Regional Rural Banks), All-India Financial Institutions, and Non-Banking Financial Companies (including Housing Finance Companies).
The exemption aims to develop secondary market operations for receivables acquired through factoring, as defined under the Factoring Regulation Act, 2011. To qualify for the MHP exemption, the following conditions must be met:
1. The residual maturity of the receivables at the time of transfer should not exceed 90 days.
2. The transferee must conduct a proper credit appraisal of the drawee of the bill before acquiring the receivables, as specified under clauses 10 and 35 of the Master Direction Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (MDTLE).
A proviso reflecting this exemption has been added to clause 39 of the MDTLE, through an amendment dated December 28, 2023. All other provisions of the MDTLE remain applicable.
For further information, contact Vaibhav Chaturvedi, Chief General Manager, at the Reserve Bank of India.
Key Entities Referenced
Reserve Bank of India: The central bank of India, referred to in the context of Master Directions and transfer of loan exposures.
All Scheduled Commercial Banks: Refers to all commercial banks in India that are included in the Second Schedule to the Reserve Bank of India Act, 1934 (excluding Regional Rural Banks).
All India Financial Institutions: Financial institutions in India that operate at the national level.
Non-Banking Financial Companies: Financial institutions in India that are not banks, including Housing Finance Companies.
Housing Finance Companies: Companies that provide financing for the purchase or construction of residential properties.
Minimum Holding Period (MHP): The minimum period for which a lender must hold a loan before it can be transferred.
Master Direction Reserve Bank of India Transfer of Loan Exposures Directions, 2021 (MDTLE): A set of guidelines issued by the Reserve Bank of India governing the transfer of loan exposures.
Factoring Regulation Act, 2011: An act regulating factoring business in India.
RBI/2023-24/99
DOR.STR.REC.60/21.04.048/2023-24 December 28, 2023
All Scheduled Commercial Banks (excluding Regional Rural Banks)
All All-India Financial Institutions
All Non-Banking Financial Companies (including Housing Finance Companies)
MHP Exemption for Transfer of Receivables
Please refer to clause 39, of the Master Direction – Reserve Bank of India (Transfer
of Loan Exposures) Directions, 2021 (“MD-TLE”), regarding requirement of Minimum
Holding Period (MHP) on transfer of loans.
2. In order to develop secondary market operations of receivables acquired as part of
‘factoring business’ as defined under the Factoring Regulation Act, 2011, it has been
decided that transfer of such receivables by eligible transferors will be exempted from
MHP requirement, subject to fulfilment of the following conditions:
i. The residual maturity of such receivables, at the time of transfer, should not be
more than 90 days, and
ii. As specified under clauses 10 and 35 of these directions, the transferee
conducts proper credit appraisal of the drawee of the bill, before acquiring such
receivables.
3. Accordingly, a suitable proviso has been added to clause 39 of MD-TLE, through
amendment dated December 28, 2023.
4. All other provisions of the MD-TLE shall continue to be applicable, as hitherto.
Yours faithfully,
(Vaibhav Chaturvedi)
Chief General Manager