Exemption for Transfer of Receivables under MHP

Lending institutions often engage in loan transfers for various reasons, such as managing liquidity, rebalancing their exposures, or making strategic sales.

RBI had issued circular bearing reference number RBI/DOR/2021-22/86 DOR.STR.REC.51/21.04.048/2021-22 dated 24 September, 2021 governing the transfer of these loan exposures.

According to Clause 39 of the above-mentioned Transfer of Loan Exposures Directions, 2021 (“MD-TLE”), there is a requirement for a Minimum Holding Period (MHP) before loans can be transferred. The transferor is only allowed to transfer loans after a specific minimum holding period, as outlined below. This holding period begins from the date of registration of the underlying security interest with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).

In light of the above, the Reserve Bank of India (RBI) has issued instructions vide circular dated 28 December, In these instructions, the RBI has stated that to promote the development of secondary market operations for receivables acquired through factoring business, as defined under the Factoring Regulation Act, 2011, the transfer of these receivables by eligible transferors will be exempt from the Minimum Holding Period (MHP) requirement. However, this exemption is subject to the fulfilment of certain conditions.

The residual maturity of these receivables should not exceed 90 days at the time of transfer.

the transferee shall conduct proper credit appraisal of the drawee of the bill, before acquiring such receivables.

These instructions shall apply to:

  • All Scheduled Commercial Banks (excluding Regional Rural Banks)
  • All All-India Financial Institutions
  • All Non-Banking Financial Companies (including Housing Finance Companies)