TReDS platforms in talks with insurance cos post RBI nod
After the Reserve Bank of India (RBI) permitted insurance companies to come onto TReDS (Trade Receivables Discounting System) platforms earlier this month, the platforms have begun discussions with insurers.
TReDS platforms have largely been approached by general insurance companies that have received the Insurance Regulatory and Development Authority of India’s (IRDAI) approval for credit insurance product and are now looking to integrate their products with the platforms, industry players said.
DISCUSSIONS ON
“We are in talks with insurance companies. The initial interest is limited, but 23 insurers have come forward, and we expect that once they start operations, we will see more interest,” said Prakash Sankaran, MD and CEO, Invoicemart. However, backend technology integration, digital upgradation for both TReDS and insurers, caution on the part of insurers and financiers and development of NACH (National Automated Clearing House) capabilities for debit and credit for insurance companies, are ensuring that the rollout is slow and being done through pilot projects or a sandbox approach.
“Globally, it is a big market, with 3040 per cent of trade finance being backed by insurance. In India, it will take some time to develop this market,” said Ketan Gaikwad, MD and CEO of Receivables Exchange of India Ltd (RXIL). “So far, banks have been discounting invoices mostly for ‘A’ and aboverated customers. Lowerrated corporates were not getting credit sanctions and their vendor bills could not be discounted. Insurers will bring liquidity on the platform because now the risk can be shared by them,” said Sundeep Mohindru, MD and CEO, M1xchange.
Typically, about 60 per cent of the financing on TReDS is allocated to micro and small enterprises with a turnover of less than ₹50 crore, whereas 40 per cent is allocated to mediumsized entities with a ₹50250 crore turnover.
Over the last 5 years, TReDS has financed over ₹1.6lakh crore, of which payments of ₹400450 crore are in default. Of this, ₹250300 crore pertains to a single large corporate, the Future Group, barring which the defaults are estimated to be around ₹150180 crore – a default rate of about 0.1 per cent.
Over the last 5 years, TReDS has financed over ₹1.6lakh crore, of which payments of ₹400450 crore are in default