RBI Increases NACH Limit to 3 Crore for MSME TReDS Settlements

The Reserve Bank of India (RBI), in its monetary policy review, enhanced the National Automated Clearing House (NACH) mandate limit from Rs 1 crore to Rs 3 crore for settlements related to the Trade Receivables Discounting System (TReDS). TReDS was introduced in 2014 by the RBI to ease the working capital crisis of Micro, Small, and Medium Enterprises (MSMEs) impacted due to delayed payment issues. 

RBI Governor Mr Shaktikanta Das stated that it is proposed to increase the NACH mandate limit from Rs 1 crore to Rs 3 crore for TReDS related settlements, considering the stakeholder’s requests and enhancing the liquidity requirements of MSMEs.

It was a hassle for MSMEs to create multiple invoices as the value of each invoice was restricted to Rs 1 crore. However, the enhanced limit would now positively impact MSME financing, which would bring efficiency in submitting lesser invoices of higher amounts. This move will also hopefully encourage banks to improve their limits on invoicing.

Also, experts say that the MSME invoices can not be limited to Rs 1 crore as the goods value and transactions value among MSMEs have increased over the past few years. Hence, increasing the NACH limit to Rs 3 crore is a welcome move. The industry requested RBI to increase the NACH limit to Rs 5 crore amid the expansion of the MSME ecosystem due to the revised MSME definition.

RBI introduced the on-tap authorisation of TReDS operators in October 2019 to encourage innovation and competition through increased participation. It is important to note that on 1st July 2020, the government revised the MSME definition and expanded the scope of the MSME sector to include enterprises up to Rs 250 crore turnover.

For any clarifications/feedback on the topic, please get in touch with the writer at dvsr.anjaneyulu@cleartax.in

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