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RXIL Initiates 1st Trade Credit Insurance Backed Transaction with Tata AIG General Insurance, ICICI Bank and YES Bank in Sandbox

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Receivables Exchange of India Limited(RXIL) has initiated a Trade Credit Insurance (TCI) backed transaction in the Sandbox environment. In this TCI backed transaction, RXIL has collaborated with TATA AIG as the insurer, ICICI bank and YES Bank as financiers. It is the 1st time a Trade Receivables Discounting System (TReDS) platform tested the effectiveness of TCI backed transactions. This improves the financier’s ability to assign credit limits to corporates.

  • After the regulatory approvals, TCI will be implemented. It will enable financiers to discount the invoices drawn on lower rated corporate buyers, by their MSME sellers and will improve the liquidity from lenders.

Benefit of Tie Up

The TCI on TReDS platform paves way for a complete digital credit insurance model & it is simple to buy credit insurance on TReDS .

About Trade Credit Insurance (TCI):

i.TCI is an insurance policy and a risk management product that is provided to the business entities to protect their business from  loss due to credit risks.

ii.It is a globally accepted Trade Financing Credit Enhancement structure.

iii.It enables financiers to discount invoices received from low- rated corporate buyers by MSME sellers.

iv.This mitigates the risk of non-payment and insolvency/defaults of the buyers. It improves liquidity from lenders.

iv.It can help to increase and expand the scope of supply chain financing, thus supporting the ‘Atmanirbhar Bharat’ initiative of the Government.

Background

i.It is to be noted that TCI on TReDS was one of the recommendations by the U.K Sinha Committee report on MSME credit.

ii.The testing in the Sandbox environment was introduced, on the review of guidelines of TCI by a working group constituted by IRDAI(Insurance Regulatory and Development Authority of India).

Key Info

i.TCI is expected to boost the ability of buyers to enable financiers to discount the invoices raised by their MSME(Micro, Small and Medium Enterprise) suppliers. This benefits the MSMEs.

ii.TCI is to get approval as Credit Risk Mitigation Technique for lending.

What is TReDS?

The scheme to set up and operate the institutional mechanism to accelerate the financing of trade receivables of MSMEs from corporate and other buyers, that includes Govt departments and Public Sector Undertakings (PSUs), through multiple financiers is called as Trade Receivables Discounting System (TReDS).

Points to be Noted

i.RXIL operates TReDS Platform as per the TReDS guideline issued by Reserve Bank of India (RBI) on December 3, 2014.

ii.RXIL is the first entity to receive the approval from RBI on December 01, 2016 to launch India’s First TReDS Exchange.

Recent Related News:

i.On October 19, 2020 Canara HSBC Oriental Bank of Commerce (OBC) Life Insurance Company Limited launched, ‘Invest 4G’ a Unit Linked Individual Life Insurance Savings Plan. It is an individual life insurance savings plan that can be customized according to the individuals’ goals and changing requirements.

ii.On September 1, 2020, the Government of Andhra Pradesh (AP) received the nod from IRDAI to form its Crop Insurance Firm Andhra Pradesh General Insurance Company (APGIC).

About Receivables Exchange of India Limited(RXIL):

Incorporated– February 25, 2016 as a joint venture between Small Industries Development Bank of India (SIDBI) & National Stock Exchange of India Limited (NSE India) with State Bank, ICICI and Yes Bank as other stakeholders.

Managing Director(MD) and Chief Executive Officer(CEO)– Ketan Gaikwad

HeadQuarters– Mumbai, Maharashtra.