Following recommendation made by the Technical Committee on Facilities and Services to the Exporters, chaired by Shri G. Padmanabhan, the Reserve Bank India (RBI) has 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.
RBI in its notification has said that Authorised Dealer Category - I (AD Category- I) 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. The invoices purchased should represent genuine trade invoices.
It further stated that 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. Additionally, AD bank, being the Export Factor, should have an arrangement with the Import Factor for credit evaluation and collection of payment
The banking regulator added that after factoring, the Export Factor may close the export bills and report the same in the Export Data Processing and Monitoring System (EDPMS) of the Reserve Bank of India. In case of single factor, not involving Import Factor overseas, the Export Factor may obtain credit evaluation details from the correspondent bank abroad. KYC and due diligence on the exporter shall be ensured by the Export Factor.