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Economics June 23, 2026 5 min read Daily brief · #24 of 27

Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026

The Reserve Bank of India issued the Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026 on June 23, 2026, consolidating and modern...

GS3 (Indian Economy Inclusive Growth MSME Financing)

What Happened

  • The Reserve Bank of India issued the Reserve Bank of India (Trade Receivables Discounting System) Directions, 2026 on June 23, 2026, consolidating and modernising the regulatory framework for TReDS platforms.
  • The Master Direction replaces earlier guidelines from 2014 and incorporates changes following a public consultation process initiated via draft guidelines released on April 8, 2026.
  • A minimum net-worth requirement of ₹25 crore has been prescribed for entities authorised to operate TReDS platforms, with existing authorised entities given a transition window until March 31, 2028.
  • The due diligence requirement for MSME sellers onboarding onto TReDS platforms has been removed, simplifying access for small businesses.
  • Financiers operating on TReDS platforms are now permitted to avail credit guarantee cover from government-approved credit guarantee funds for their TReDS exposures.
  • The directions are issued under Section 18 read with Section 10(2) of the Payment and Settlement Systems Act, 2007.

Static Topic Bridges

TReDS — What It Is and How It Works

TReDS (Trade Receivables Discounting System) is an electronic platform authorised by the RBI to facilitate the financing and discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs) through multiple financiers. It operates on a factoring model: an MSME seller that has supplied goods or services to a corporate buyer uploads the invoice on the TReDS platform; financiers (banks, NBFCs) bid to discount the invoice; the MSME receives immediate payment; and the buyer pays the financier on the due date.

  • TReDS transactions are carried out "without recourse" to the MSME seller — if the buyer defaults, the financier cannot recover from the MSME.
  • Platforms can handle both factoring (seller-initiated) and reverse factoring (buyer-initiated) to maximise transaction volumes.
  • Factoring units, once accepted on TReDS, have the same sanctity and enforceability as physical instruments under negotiable instruments law.
  • CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) registration of receivable assignments is mandated for transparency.
  • Currently three TReDS platforms are RBI-authorised: RXIL (Receivables Exchange of India Ltd), M1xchange, and Invoicemart.

Connection to this news: The 2026 Master Direction rationalises and harmonises the existing TReDS framework, lowering onboarding friction for MSMEs and expanding the tools available to financiers, addressing a key bottleneck in MSME credit access.

Payment and Settlement Systems Act, 2007 — Regulatory Framework

The Payment and Settlement Systems Act, 2007 (PSS Act) is the primary legislation governing payment systems in India. It empowers the RBI to regulate, supervise, and authorise payment systems operating in the country. Section 10(2) grants the RBI power to issue directions to system providers, and Section 18 grants the RBI broad power to issue directions in the public interest with respect to payment systems.

  • TReDS platforms are authorised as payment systems under the PSS Act, 2007.
  • The RBI's Payment and Settlement Systems Regulations, 2008, govern the operational aspects of authorised payment systems.
  • The PSS Act mandates prior authorisation from RBI before any entity can operate a payment system in India (Section 4).
  • Non-bank Payment System Operators (PSOs) — including TReDS platforms — must maintain the prescribed minimum net-worth; the 2026 Direction aligns TReDS net-worth requirements with those of other non-bank PSOs (₹25 crore).

Connection to this news: The RBI's legal authority to issue the 2026 TReDS Master Direction flows directly from Sections 10(2) and 18 of the PSS Act, 2007.

Factoring is the business of financing by purchasing trade receivables. The Factoring Regulation Act, 2011 governs the business of factoring in India and defines the legal rights and obligations of the parties involved. The Act was amended in 2021 (Factoring Regulation Amendment Act, 2021) to expand the eligibility of entities that can carry on factoring business — notably allowing NBFCs registered with the RBI to participate, which significantly increased the pool of potential financiers on TReDS.

  • "Factoring" under the Act involves assignment of receivables by an assignor (seller/MSME) to a factor (financier).
  • The three parties are: assignor (MSME), debtor (corporate buyer), and assignee/factor (bank or NBFC financier).
  • Assignment of receivables must be registered with the Central Registry (CERSAI) under the Act.
  • The 2021 Amendment expanded factoring to all NBFCs registered with the RBI, not just those with more than 50% of assets/income from factoring.

Connection to this news: TReDS transactions constitute factoring under the Factoring Regulation Act, 2011. The 2026 TReDS Directions build on this legal foundation by permitting credit guarantee cover, further reducing the perceived risk of MSME receivables financing.

MSME Credit Gap and Policy Context

MSMEs in India face a large and well-documented credit gap. Despite contributing approximately 30% of GDP and over 45% of exports, MSMEs account for only about 14–16% of total formal bank credit. The primary reason is that MSMEs sell to large corporate buyers on credit terms (30–90 days) but need working capital upfront. TReDS was designed specifically to convert this illiquid receivable into immediate liquidity.

  • MSMEs are defined under the MSMED Act, 2006, as amended in 2020: Micro (investment up to ₹1 crore, turnover up to ₹5 crore), Small (₹10 crore / ₹50 crore), Medium (₹50 crore / ₹250 crore).
  • Companies with turnover above ₹500 crore were mandated by the RBI in 2019 to register on at least one TReDS platform.
  • Credit guarantee for TReDS exposures, now permitted, addresses the risk aversion of financiers by reducing capital requirements for covered exposures.

Connection to this news: The 2026 directions address two persistent pain points in TReDS adoption: MSME sellers' compliance burden (removed due diligence) and financiers' risk appetite (credit guarantee cover permitted).

Key Facts & Data

  • Legal authority: Section 18 read with Section 10(2), Payment and Settlement Systems Act, 2007
  • Minimum net-worth for TReDS operators: ₹25 crore
  • Deadline for existing entities to meet net-worth criterion: March 31, 2028
  • TReDS transaction structure: without-recourse factoring or reverse factoring
  • Factoring Regulation Act amendment year: 2021 (expanded NBFC participation)
  • MSMED Act, 2006 classification thresholds (as revised 2020): Micro ≤ ₹1 cr investment / ₹5 cr turnover; Small ≤ ₹10 cr / ₹50 cr; Medium ≤ ₹50 cr / ₹250 cr
  • Current authorised TReDS platforms: RXIL, M1xchange, Invoicemart (3 platforms)
  • Companies with turnover above ₹500 crore mandated to onboard TReDS: since RBI circular of 2019
On this page
  1. What Happened
  2. Static Topic Bridges
  3. TReDS — What It Is and How It Works
  4. Payment and Settlement Systems Act, 2007 — Regulatory Framework
  5. Factoring Regulation Act, 2011 — The Legal Basis of Receivables Financing
  6. MSME Credit Gap and Policy Context
  7. Key Facts & Data
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