Banks can factor export receivables to improve cash flow: RBI

Mumbai: The Reserve Bank on Thursday allowed banks to factor export receivables on a non-recourse basis, so as to enable exporters to improve their cash flow and meet their working capital requirements.

The decision has been taken following recommendation made by the Technical Committee on Facilities and Services to the Exporters.

By factoring export receivables, banks could provide cash to exporters, which would help exporters to meet cash requirement before the actual payment is received.

However, banks may take their own business decision to enter into export factoring arrangement on non-recourse basis.

"They should ensure that their client is not over financed. Accordingly, they may determine the working capital requirement of their clients taking into account the value of the invoices purchased for factoring," RBI said, adding the invoices purchased should represent genuine trade invoices.

In case the export financing has not been done by the Export Factor, it may pass on the net value to the financing bank/institution after realising the export proceeds.

Further, bank, being the Export Factor, should have an arrangement with the Import Factor for credit evaluation and collection of payment, the RBI said.

"KYC and due diligence on the exporter shall be ensured by the Export Factor," it added.

India's exports dipped by 15.82 per cent in June to USD 22.28 billion due to global slowdown and dip in crude oil prices that impacted shipments of petroleum products.

In a notification on foreign investment by foreign portfolio investors (FPI), RBI said the restriction on investments with less than three years residual maturity shall not be applicable to investment by FPIs in security receipts (SRs) issued by Asset Reconstruction Companies (ARCs).

However, investment in SRs should be within the overall limit prescribed for corporate debt from time to time.

Further operational guidelines, if any, will be issued by capital market regulator Sebi.

All other existing conditions for investment by FPIs in the debt market remain unchanged, the RBI added.