Page 203 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes 2. The banks may negotiate bills drawn under LCs, on 'with recourse' or 'without recourse'
basis, as per their discretion and based on their perception about the credit worthiness of
the LC issuing bank. However, the restriction on purchase/discount of other bills (the
bills drawn otherwise than under LC) on 'without recourse' basis will continue to be in
force.

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

Case Study PNB enters Factoring Business

Picks up 30% stake in IFFSL; to focus on SMEs initially.
Punjab National Bank (PNB) has forayed into factoring business through the joint venture
route. The joint venture company, India Factoring & Finance Solutions Pvt Ltd (IFFSL), on
Wednesday commenced commercial operations simultaneously in New Delhi, Mumbai
and Chennai.

To begin with, IFFSL will focus on domestic factoring and provide this financing solution
primarily to small and medium enterprises (SMEs) and small-scale industries, PNB
Chairman and Managing Director, Mr K. R. Kamath, said.
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.
PNB has a 30 per cent stake in IFFSL and has already pumped in 30 crore into the venture.
IFFSL has commenced operations with an initial paid-up capital of 100 crore, according
to Mr Mohan Tanksale, Chairman of IFFSL, and an Executive Director of PNB.
Malta-based FIMBank Plc has 49 per cent stake in IFFSL. The remaining stake is with other
joint venture partners - Italy-based Banca IFIS and Blend Financial Services of Mumbai.
Mr Kamath also said that regulatory approvals have been sought for IFFSL to provide
international factoring/forfeiting. "Once the regulatory approval is received, IIFSL will
provide both domestic and international factoring," he said.

Legal Framework
He also highlighted that factoring business in India has not made much progress due to
lack of consolidated legal framework for the business. However, there has been growing
realisation that factoring can be a solution for receivable management of the SME sector,
Mr Kamath noted. In India, SMEs employ about 60 million people and account for about
45 per cent of total exports (in value terms) from the country.
Question
Discuss the impact of factoring on bank's business.

Source: http://www.thehindubusinessline.in

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