 "High NPAs impeding growth of factoring business: RBI official")
A senior Reserve Bank of India (RBI) official today said the very high level of bad loans is hampering the faster growth of the factoring segment.
Noting that despite the enactment of the Factoring Regulation Act in 2011, the industry has not taken off as desired, Sudarshan Sen, an executive director at the central bank said that due to this the Rs 3,200 crore industry has not grown in recent years.
"What is of concern also is the high NPAs in the factoring sector with a gross NPA of 29% and net NPA ratio of 11%, which is alarming as it has led the players with negative RoA (return on assets) and RoE (return on equity). So these areas need to be addressed," Sen told a factoring summit organised by industry lobby Assocham.
He said one of the impediments in the healthy functioning of factoring industry is the non-availability of recourse under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act. Its provisions were extended to all systemically important NBFCs including NBFC factors last year.
"This is expected to improve recovery by factors and reduce their NPA levels," Sen said, adding RBI's trade receivables discounting system (TReDS) can come handy for them as it will facilitate discounting of invoices and bills of exchange. This can also be a huge source of information to tap potential clients.
On the issue of allowing factors to identify wilful defaulters, he said the matter is with the Supreme Court now. On the just cleared NPA Ordinance, Sen said this move approved by the President will define the way forward in tackling the bad loans issue.
"The ordinance has just received Presidential assent. We'll continue to make all efforts to resolve the NPA problem and this ordinance is one more chapter," he said, adding the RBI is "determined to solve it".
Noting that despite the enactment of the Factoring Regulation Act in 2011, the industry has not taken off as desired, Sudarshan Sen, an executive director at the central bank said that due to this the Rs 3,200 crore industry has not grown in recent years.
"What is of concern also is the high NPAs in the factoring sector with a gross NPA of 29% and net NPA ratio of 11%, which is alarming as it has led the players with negative RoA (return on assets) and RoE (return on equity). So these areas need to be addressed," Sen told a factoring summit organised by industry lobby Assocham.
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Sen said since the new factoring law was enacted, six NBFC factors got registered with the RBI of which three are systemically important.
He said one of the impediments in the healthy functioning of factoring industry is the non-availability of recourse under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act. Its provisions were extended to all systemically important NBFCs including NBFC factors last year.
"This is expected to improve recovery by factors and reduce their NPA levels," Sen said, adding RBI's trade receivables discounting system (TReDS) can come handy for them as it will facilitate discounting of invoices and bills of exchange. This can also be a huge source of information to tap potential clients.
On the issue of allowing factors to identify wilful defaulters, he said the matter is with the Supreme Court now. On the just cleared NPA Ordinance, Sen said this move approved by the President will define the way forward in tackling the bad loans issue.
"The ordinance has just received Presidential assent. We'll continue to make all efforts to resolve the NPA problem and this ordinance is one more chapter," he said, adding the RBI is "determined to solve it".