Factoring is a new financial concept in India. In keeping pace with the growing need of credit, the necessity to develop more and more asset based financing agencies has become imperative.
Especially for SSI units which have serious liquidity problems on account of non-payment from public sector undertakings. Factoring services provide good relief in such cases. For SSI sector alone the potential for factoring business is estimated around Rs. 45,000 crore.
Suggestions of C.S. Kalayana Sundaram Committee Jan 28 , 1988
1. The Committee recommended the introduction of Factoring services in India to complement the services provided by banks. Export Factoring can also be launched.
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2. Factors should cover wide range of industries embracing all sectors of economy.
3. The cost of funds should not be more than 13.5% per annum. Factors will have to charge the price for services at a rate not higher than banks. The price for administrative services may not exceed 2.5 to 3 % of debt services.
4. Factoring agencies may be promoted on zonal basis. One each for North, South, East and West ( For South, Cananra Bank has sponsored Can Bank Factors Ltd. while in the Western Zone SBI Factors Ltd. has been set up).
5. Banks have considerable experience in financing and collection of receivables. Besides, they have access to credit information regarding both sellers and buyers. An additional advantage is the large network of branches.
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At present only two Factoring subsidiaries of State Bank of India and Canara Bank are functioning namely SBI Factors Ltd and Can Bank Factors Ltd covering west and south zones’ They are also permitted to operate in other zones as the Punjab National Bank and Allahabad Bank have not come forward to set up subsidiaries for North and East zones.
6. The Committee has recommended that the Government may enact a suitable legislation for the levy of penal interest for delayed payment from the debtors beyond specified period. It has also recommended that the Government should exempt assignment of factored debts from stamp duty.
Factoring service so far not picked up in India due to various deficiencies including high cost service charges, documentation difficulties, legal lacuna, etc.
Mutual Funds
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Mutual Funds are agencies which pool together the investors ‘ funds and invest them in diversified securities, thus, reducing risks. The funds are managed by experts known as portfolio managers and are constituted as a trust.
In a simpler term, Mutual Funds are holders of vast pools of money mostly collected from retail investors like individual savers. In one respect they are similar to banks that are intermediaries between savers and users of capital. They are usually permitted to invest in Financial Assets and not in physical asset like gold and real estate.
In India the concept of mutual funds was first introduced by Unit Trust of India in 1964. The Fund is known as ‘US 64.’ Later, many banks have set up subsidiaries for starting mutual fund business. Some important bankers include, SBI, Canara Bank, Bank of India, Punjab National Bank, etc.
These subsidiaries do not come under the Companies Act as joint stock companies nor under the Banking Regulation Act as banking companies but their activities are regulated by the Securities and Exchange Board of India.