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CPSEs dragging feet on bill discounting via TReDS despite govt directive; share remains minuscule at 7%

invoice discounting, factoring, CPSEs, TReDS, Central Public Sector Enterprises, MSME Ministry, MSME Secretary A.K. Sharma, MSME Secretary, A.K. Sharma, Ketan Gaikwad Receivables Exchange of India, Ketan Gaikwad RXIL, CII National MSME Council, Sundeep Mohindru M1xchange, Sundeep Mohindru, M1xchange, Union Minister, Nitin Gadkari, Prakash Sankaran Invoicemart, Prakash Sankaran, Reserve Bank of India, Trade Receivables Discounting System, liquidity crunch, MSMEs, payment delays, Receivables Exchange of India, RXIL, Mynd Solution, M1xchange, Invoicemart, A.TReDS, Axis Bank, mjunction servicesNot even 30 per cent of the CPSEs who have onboarded any one of the TReDS platforms transact on it.

Credit and Finance for MSMEs: The MSME Ministry in November 2018 mandated all companies with a turnover of more than Rs 500 crore and above and Central Public Sector Enterprises (CPSEs) to get registered on the RBI-regulated Trade Receivables Discounting System (TReDS). This was intended to be a game-changer in solving the liquidity crunch faced by MSMEs due to payment delays by their corporate and government buyers.

Three years on, public sector firms are still refraining from using the TReDS platform.

Of the total invoice discounting that has happened on all the three TReDS platforms, at Rs 40,369 crores, central public sector firms’ share is at a meager 7.24 per cent, amounting to Rs 2,924 crore as per data collated by Financial Express Online.
It was at a mere three percent by last fiscal at Rs 1,020 crore (Data Source: RXIL).

The three TReDS platforms that have been given the license to operate are Receivables Exchange of India (RXIL); Mynd Solution’s M1xchange; and Invoicemart, promoted by A.TReDS, a joint venture between Axis Bank and mjunction services.

According to the data shared by the respective firms, in terms of volume, the percentage share of bill discounting done by CPSEs was 18 per cent at RXIL (worth Rs 2,218.60 crore), 4.4 per cent at Invoicemart (around 600 crore-plus) and only 0.73 per cent at Rs 105.6 crore at M1xchange.

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A positive that was found is an increase in the number of CPSEs registered on TReDS over last year. From 2020, the number of CPSEs who have registered on TReDS has increased from 156 to 216 by this year. As per DPE, there are 255 CPSEs eligible to be registered on TReDS platforms.

But, it is crucial to note that, even today, not even 30 per cent of the CPSEs who have onboarded any one of the TReDS platforms transact on it. On RXIL, 107 CPSEs are registered but only 24 have done a transaction. “Of these 24 firms, only five CPSEs have done transactions more than Rs 50 crores and 17 CPSEs have discounted bills less than Rs 10 crore,” said Gaikwad. On M1xchange, only 20 out of 69 registered CPSEs have transacted to date.

Slow transaction growth
While there is a slight growth in transaction volumes from last year by CPSEs, it is not in line with the government’s directives.

In September 2020, then MSME Secretary A.K. Sharma had written to corporates to onboard TReDS and start transacting to ensure timely payments to MSMEs. The letter stated, “Many corporates are yet to join or transact. You are requested to onboard your company on the TReDS and start transacting.” Financial Express Online has a copy of this letter.

“While there is a clear order from the government that CPSEs should register on the platform and start transacting, it is not happening at the scale it should,” Ketan Gaikwad, MD & CEO at Receivables Exchange of India (RXIL) told Financial Express Online.

The reasons are obvious. “There is no will from the public sector firms to transact on TReDS because of the transparency that comes by making payments through the TReDS platforms,” said Gaikwad. Once the bill is uploaded by the MSME supplier, it has to be accepted by the corporate. This acceptance creates an obligation for them to make the payment by the due date (within the next 45 days), which is a challenge for CPSEs to adhere to, said Gaikwad. If the payment is not made within the time frame, it is considered a default.

Payment delays
An MSME promoter Financial Express Online spoke to confirmed on condition of anonymity that their CPSEs buyers penalise them by extending the payment date if they insist on passing their invoices on the TReDS platform. Several other industry spokespeople acknowledged it to be a common practice amongst public sector firms.

Rajata Mehra, Partner at Rajat Chemical Industry and Member of CII National MSME Council said that the problem of payment delays with private firms has improved with the introduction of government initiatives such as the filing half-yearly returns by corporates with MCA on their dues to MSMEs. However, the problem of payment delays from public sector enterprises is yet to be resolved, he said.

“We have witnessed several cases where payments are delayed invariably by PSUs, sometimes to the extent of a year. That’s a huge, huge period for an MSME,” said Mehra.

Sundeep Mohindru, CEO at M1xchange said that another problem with CPSEs is that their internal processes are not as well aligned as those in the private sector. “In public sector, invoice approval takes 40-45 days, sometimes even more, so there is no value proposition for an MSME to raise their invoice on TReDS,” he said.

Adoption by CPSEs
Last year, former Union Minister Nitin Gadkari had said that there are payments dues worth Rs 5 lakh crore to the MSME sector from government agencies, public sector undertakings and major industries.

Unless the public sector enterprises start transacting on the platform to clear their payments to MSMEs on time, the benefit from TReDS will be limited. “The success of TReDS would be entirely based on the adoption by the public sector procurement system because there is a substantial cost-benefit and risk-reward ratio benefit for MSMEs here,” said Mehra.

“Increased participation of CPSEs will indeed be a game-changer for TReDS and volumes on the platform,” said Prakash Sankaran, MD & CEO, A.TReDS (that owns Invoicemart).

To increase adoption, TReDS platforms are working closely with MSME Ministry to ensure larger participation by PSUs on TReDS. “There needs to be a compulsion that for all the government buying from MSMEs, the payments should be made mandatory through TReDS, this will allow tracking of when the MSME payments are made and will also provide excellent economic data on the state of the economy ” said Gaikwad.

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