Page 28 - Banking Finance November 2022

ARTICLE

by A.TReDS Ltd. (a joint venture between Axis Bank and is unknown credit risk that is not covered in assessments.
Mjunction Services), which received the license for the In recent past, credit risk has been becoming an issue
platform on June 29, 2017, and started operations on for banks. This is becoming a reason for hesitation for
July 5, 2017. more financiers to onboard the platform.
2. As MSMEs do not have much recourse in the case of
Benefits: defaults, invoices to unknown buyers may not be

a) Sellers: accepted by financiers even as the platforms develop.
The primary focus of TReDs is quick and easy working This is because banks find it difficult to authenticate
capital financing of suppliers through invoices and bills small business invoices and the secondary market will
of exchange. Since an exchange is involved, process be small till volumes develop.
standardization is robust and there is no requirement
3. Large companies are sometimes reluctant to be on
of repetitive documentation with multiple banks.
these platforms for fear of competitors identifying their
Moreover, the financing is off-balance sheet and is non- suppliers. Companies are also uncomfortable uploading
recourse for the supplier, providing even more flexibility.
suppliers' invoices online as it means that they would
b) Buyers: have to be settled within the stipulated time period
The transaction is executed through a digital platform,
which provides key information seamlessly. Such an Summary:
operation reduces administrative costs and financing
TReDS meets the twin objectives of providing access to
costs and provides better negotiations. Moreover,
working capital and reduced cost for MSMEs. This will
through the exchange the settlement and payments are
improve the liquidity in the MSME sector significantly. As of
done smoothly.
May 31, 2021, 1592 companies with an annual turnover of
c) Financiers: more than INR 500 crores have registered on the TReDs
With the help of an exchange driven mechanism, the portal. Transactions worth INR 5600 crores were executed
documentation and procurement cost is substantially via M1 exchange in FY 2020-21, three times the number for
reduced. Moreover, with the key information available, the last three FYs combined. Such momentum amongst
there is immense opportunity to build quality PSL asset MSMEs showcases the pivotal role of TReDs mechanism in
portfolio in MSME space. the digitized era of a post-covid world. Though challenges
remain on the information and risk management fronts, the
Challenges: mechanism has gained much popularity in the last 18
1. One of the primary challenges faced by banks/financiers months and continues to grow manifold.

Cheque dishonoured only if it represents legally binding debt on data

of encashment
The Supreme Court held that a cheque is dishonoured only if it represents a "legally enforceable debt" on the date
of its maturity or presentation. "For the commission of an offence under Section 138 [of the Negotiable Instruments
Act], the cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presenta-
tion," a judgment by a Bench of Justices D.Y. Chandrachud and Hima Kohli clarified the law.
Section 138 makes cheque bouncing or dishonour of a cheque a criminal offence liable for punishment with imprison-
ment for a term which may extend to two years or with fine which may stretch to twice the amount of the cheque.
The court was dealing with a situation where the drawer of the cheque would have paid part of the debt for which
he or she may have given a post-dated cheque as security.
Justice Chandrachud, who authored the verdict, said "if the drawer of the cheque pays a part or whole of the sum
between the period when the cheque is drawn and when it is encashed upon maturity, then the legally enforceable
debt on the date of maturity would not be the sum represented on the cheque

28 | 2022 | NOVEMBER | BANKING FINANCE