Page 242 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 11: Leasing and Factoring

Notes

Task Find out the situations under which the banks cannot rediscount the bills.

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Caselet Bill on 'Factoring' Coming in Budget Session: Minister

he Centre will, in the upcoming Budget session of Parliament, introduce a Bill on
'factoring' so as to provide a comprehensive legal and regulatory framework for
Tsuch services, Mr Namo Narain Meena, Minister of State for Finance, has said.
The proposed legislation would provide adequate protection for major players to further
develop the factoring business in India, Mr Meena said here on Wednesday. Factoring
covers a range of services including receivable financing, sales ledger administration,
accounts receivable collection and management, and credit protection.
What's Factoring

Factoring business had not made much progress in India due to the absence of a
consolidated legal framework for such business. Although the concept of factoring services
was not very new for India, there are only few players in the market, Mr Meena pointed
out. Mr Meena highlighted that the Department of Financial Services has already prepared
a draft factoring Bill in consultation with various stakeholders including the Ministry of
Micro, Small and Medium Enterprises. The proposed legislation will be conducive to
increasing lending to SMEs, he said. Among the various risks faced by SMEs, which are
largely unorganised, a major one is delay or default of payment by counterparty.

Source: http://www.thehindubusinessline.in

11.11 Summary

 Leasing is a process by which a firm can obtain the use of a certain fixed assets for which
it must pay a series of contractual, periodic, tax deductible payments. Under normal
circumstances, an owner of property is at liberty to do what they want with their property.
 However, if the owner has surrendered possession to another (i.e. the tenant) then any
interference with the quiet enjoyment of the property by the tenant in lawful possession
is unlawful. A lease contract can be classified on various characteristics in many categories
like Finance Lease and Operating Lease; Sales & Lease back and Direct Lease; Single
investor and Leveraged lease and Domestic and International lease.

 There are many financial, legal and tax related aspects of leasing. Financially, leasing is
more advantageous than harmful.
 But in India, the tax benefits given to the leasing companies are not substantially as good
as their counterparts in developed economies.
 Factoring may be defined as the relationship, created an agreement, between the seller of
goods/services and a financial institution. Forfeiting is trade finance extended by a forfeiter
to an exporter seller for an export/sale transaction involving deferred payment terms
over a long period at a firm rate of discount.

 In addition to the rendering of factoring services, banks financial institutions also provide
bills discounting facilities provide finance to the client.

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