TReDS tweak to ease MSME credit flow amid global pressure

Mumbai: The banking regulator’s decision to remove due diligence requirements for onboarding onto the Trade Receivables Discounting System (TReDS) platform is expected to improve credit flow to micro, small and medium enterprises (MSMEs), particularly at a time when their working capital cycles are under strain from global economic disruptions.

Banks say easier access to TReDS could enhance liquidity and reduce friction in invoice financing, especially for export-oriented and supply chain-linked businesses.

“The removal of due diligence requirements for onboarding onto TReDS will significantly enhance liquidity access and working capital efficiency for small businesses,” said Ajay Kumar Srivastava, managing director and CEO, Indian Overseas Bank.

The Reserve Bank of India (RBI) has also released revised draft guidelines for TReDS platform operators and participants. The proposed changes seek to streamline capital requirements for authorised entities in line with other non-bank payment system operators, simplify the onboarding process for MSME sellers and permit financiers to avail credit guarantee cover for exposures undertaken on the platform. The timing is critical.

“MSMEs, particularly in export-linked and supply chain ecosystems, are entering a phase where working capital cycles are becoming more volatile due to global disruptions,” said Salee S Nair, MD and CEO, Tamilnad Mercantile Bank. “This requires banks to move beyond collateral-led lending to dynamic, cash flow-based assessment models anchored in GST (goods and services tax) trails, account aggregator frameworks and transaction data.”

For banks, the shift presents an opportunity to sharpen portfolio granularity, recalibrate sectoral exposures and build early-warning systems that are more predictive than reactive, with growth increasingly tied to flexible financing solutions that mirror underlying business cycles rather than rely solely on rate-driven demand, said executives.

The regulatory push complements a broader policy thrust. In the Union budget, finance minister Nirmala Sitharaman mandated TReDS as the transaction settlement platform for all purchases from MSMEs by public sector units, along with announcing a credit guarantee support mechanism for invoice discounting on the platform. The move is aimed at easing working capital stress and reinforcing the shift toward market-based financing at a time when nearly ₹8.1 lakh crore remains locked in delayed payments to MSMEs. Overall bill financing on TReDS platforms has already crossed ₹2.5 lakh crore, with more than 100,000 bills financed.

The stakes are considerable. According to a report by B2K Analytics, the MSME sector’s total funding requirement is estimated to increase to ₹162.92 lakh crore by 2030 from ₹50 lakh crore at the end of 2025.