A Parliamentary Panel wants Reserve Bank of India (RBI) to frame guidelines on pricing of factoring services so as to protect the interests of micro, small and medium enterprises (MSMEs). Also, the rates charged by factors should not be higher than those charged by banks for similar services.

These suggestions form part of the Standing Committee on Finance’s report on the Factoring Regulation Bill 2011. This report was tabled in Lok Sabha on Tuesday.

The House Panel headed by Mr Yashwant Sinha is of the view that pricing of factoring services cannot go unregulated as it would only lead to "exploitative practices".

The Standing Committee’s suggestion is in sharp contrast to the Finance Ministry’s stance that the RBI cannot be asked to administratively determine the rates of commission or discount charged by the factor to the assignor (MSME).

The Finance Ministry had in its submissions told the Standing Committee that the RBI had moved away from administered rate of interest regime for financial products and any suggestion to administratively determine the rates would not be in line with the existing policy.

Factoring is a financial transaction where a business sells its accounts receivable to a third party called ‘factor’, which undertakes the activity of financing the receivables, administration of debt and collection of debt.

Meanwhile, the Government is likely to exempt factoring transactions from stamp duty by moving an amendment to the Indian Stamp Act, 1899 through a schedule to the present Factoring Regulation Bill. An indication to this effect was given to the House Panel by the Finance Ministry through their written submissions.

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