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Trade Receivables Discounting System (TReDS) platforms

Source: HBL

 Context: The Indian government and the Reserve Bank of India (RBI) are exploring the integration of the Goods and Services Tax Network (GSTN) with the Trade Receivables Discounting System (TReDS) platforms using an account aggregator.

  

What is the Goods and Services Tax Network (GSTN)?

The Goods and Services Tax Network (GSTN) is a technology platform established by the Indian government to manage the implementation of the Goods and Services Tax (GST) system. It serves as a backbone for the GST regime, facilitating taxpayer registration, invoice filing, tax payment, and return filing processes.

 

What are Trade Receivables Discounting System (TReDS) platforms?

Trade Receivables Discounting System (TReDS) platforms are digital platforms that provide a mechanism for small and medium-sized enterprises (SMEs) to raise funds by selling their trade receivables or invoices to financiers at a discounted rate. These platforms facilitate the early realization of funds, helping SMEs improve their cash flow and working capital.

 

What is an account aggregator?

An account aggregator is a financial intermediary that collects and consolidates a user’s financial data from various sources such as banks, mutual funds, insurance companies, and other financial institutions.

Account Aggregator Network (AAN) is an RBI-regulated entity (with an NBFC-AA license) Currently, 23 banks from both public and private are under the AAN. AA framework was created in 2021 through an inter-regulatory decision by RBI and other regulators including SEBI, IRDA, and PFRDA through an initiative of the Financial Stability and Development Council (FSDC)

 

How does the integration of GSTN with TReDS help?

  • It facilitates direct sanctions of invoices raised by Micro, Small, and Medium Enterprises (MSMEs) on the GSTN platform.
  • By integrating the two systems, e-invoices generated on the GSTN can be seamlessly transmitted to the TReDS portal, eliminating the need for additional activities or documentation.
  • This will lead to faster loan underwriting and sanctions as financiers will have greater confidence in the authenticity of the invoices sourced directly from the GST platform.
  • Development of an alternative credit database, particularly benefiting MSMEs with limited credit history.