Factoring services originated from the recommendations of Kalyanasundaram Committee. SBI was the first to start factoring services and Canara Bank has floated Canbank Factors Ltd, which was incorporated on 10th May 1991. Factoring is a portfolio of complementary financial services relating to receivables of a company.
The basic components of factoring services are finance up to 80% of the invoice value, sales ledger administration, debt collection services and credit insurance. Current Guidelines on Factoring say that
Banks can form subsidiaries for Factoring Services subject to the following guidelines:
(a) Banks can conduct its business by setting up subsidiaries and invest in factoring companies jointly with other banks.
(b) Such concerns should not engage themselves in financing of other companies and concerns engaged in factoring.
(c) Investment of a bank in the business should not exceed 10% of the paid up capital and reserves of the bank.
(d) Setting up such ventures requires prior clearance from RBI.
(e) The bank should furnish information as required by RBI from time to time.