The Reserve Bank of India has raised the limit of NACH mandate from ₹1 crore to ₹3 crores for settlements related to the TReDS platform (Trade Receivables Discounting System). The RBI Governor Shaktikanta Das made this announcement on February 10, 2022, in his Monetary Policy speech.
The Indian Central Bank made the decision keeping in view the increasing liquidity needs of the Micro, Small and Medium Enterprises (MSMEs) that often face financial crunch. RBI had also received requests for increasing the limit from TReDS platforms. Moreover, in order to strengthen the infrastructure for the financing of receivables, RBI enhanced the mandate limit for invoice discounting mechanism-related settlements.
What is NACH?
- NACH stands for National Automated Clearing House.
- Launched by NPCI (National Payments Corporation of India), NACH is an online payment system for businesses to collect recurring payments.
- It is also used by banks, financial institutes and the government to ease high volume and periodic inter-bank electronic transactions.
- It is used for bulk transactions and is available all days of the week.
- NACH replaced ECS or Electronic Clearing Service in 2016.
- NACH can be classified into NACH Debit and NACH Credit.
Benefits of NACH e-Mandate
- The NACH e-mandate service was launched to streamline repeated payments and automate the distribution of subsidies, interest payments, salary, pension, and so on.
- NACH Credit can be used to send high-value payments to several receivers directly in their bank accounts.
- Collection of bill payments for telephone, electricity, water, insurance premiums, loans and investments, etc is also processed faster.
- This results in better customer service, on-schedule payments and highly streamlined and fast processing of transactions.
- There is less chance of error as the whole process is automated.
In his statement, RBI Governor said that “The Trade Receivables Discounting System (TReDS) facilitates the financing of trade receivables of Micro, Small and Medium Enterprises (MSMEs). Transactions in TReDS are settled through the National Automated Clearing House (NACH) system”.
According to the RBI website, “TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs) through multiple financiers. These receivables can be due from corporates and other buyers, including Government Departments and Public Sector Undertakings (PSUs).”
The TReDS platform users had been requesting the government to increase the mandated limit to ₹5 crores even as the value of the transaction of goods has been steadily rising. With the definition of MSMEs revised in 2020, more businesses have come under the ambit of SMEs (Small and Medium-sized Enterprises). RBI had also introduced the on-tap authorization of TReDS operators in 2019 to “encourage innovation and competition through increased participation.”
With the value of invoices increased, MSMEs were finding it difficult to issue multiple invoices with a limit of each up to ₹1 crore. Increasing the limit to ₹3 crores will promote efficiency in issuing invoices of greater amounts.
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