Partner, Varun Chauhan and Associate, Pranav Dwivedi have recently authored an insightful article titled, ‘Factoring Regulations In India: A Comprehensive Regulatory Overview’.
This article provides a comprehensive overview of India’s evolving legal and regulatory framework governing the factoring business – the sale of trade receivables for immediate liquidity, particularly vital for MSMEs. It explains how factoring has shifted from a niche financing mechanism to a mainstream credit tool, supported by a structured legislative foundation under the Factoring Regulation Act, 2011 (FRA 2011), and further operationalised through key Reserve Bank of India (RBI) regulations.
The discussion focuses on the core statutory provisions of the FRA 2011, the RBI’s 2022 regulations that expand and streamline participation by NBFCs and TReDS platforms, and the integration of factoring within the Priority Sector Lending (PSL) Master Directions, 2025. It also highlights the regulatory approach to bank-led factoring, risk allocation mechanisms, documentation requirements, and safeguards that ensure transparency and prevent double financing. Overall, the article examines how these frameworks collectively strengthen the factoring ecosystem to support MSME liquidity and advance India’s broader financial inclusion objectives.
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