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RBI to simplify onboarding process for MSMEs on TReDS

April 08, 2026 4 min read Economics GS3 (Indian Economy — MSME financing banking regulation)
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What Happened

  • The Reserve Bank of India has proposed to dispense with the requirement of due diligence for MSMEs during onboarding on TReDS platforms, aiming to expand their participation in invoice discounting.
  • The proposal was announced as part of the RBI's April 2026 monetary policy statement and will be followed by draft directions for public consultation.
  • The move is intended to reduce procedural barriers that have historically kept small businesses away from TReDS, thereby improving their access to working capital.
  • Companies with annual turnover exceeding ₹250 crore are already mandated to register on TReDS platforms; the new measure targets the MSME supply side of these transactions.

Static Topic Bridges

Trade Receivables Discounting System (TReDS)

TReDS is a digital platform established and regulated by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007, to facilitate the financing of trade receivables of MSMEs from corporates (buyers) and government entities through multiple financiers. It operates on a competitive auction mechanism: MSMEs upload invoices, buyers confirm them, and registered financiers bid for the receivables — the MSME selects the best offer and receives immediate payment, while the buyer settles with the financier at invoice maturity. Critically, TReDS transactions are structured "without recourse," meaning the MSME bears no liability if the buyer defaults.

  • RBI authorises TReDS platforms under the Payment and Settlement Systems Act, 2007.
  • Three licensed TReDS platforms operate in India: RXIL (Receivables Exchange of India Ltd), M1xchange, and C2treds.
  • Companies with turnover exceeding ₹250 crore and all Central Public Sector Enterprises (CPSEs) are mandated to register on TReDS platforms.
  • TReDS enables invoice discounting at competitive rates determined by financier bidding — distinct from traditional bank-led supply chain financing.

Connection to this news: The due diligence requirement during MSME onboarding was a procedural hurdle that slowed or prevented small businesses from registering. Removing it directly addresses the supply-side constraint on TReDS participation.

MSME Credit Gap and Working Capital Financing

MSMEs face a structural working capital gap stemming from delayed payments from large buyers. The MSME Development (Amendment) Act, 2023 mandates that buyers file information on outstanding dues to MSME suppliers exceeding 45 days on TReDS platforms, creating transparency. Despite this, onboarding friction and credit assessment requirements have limited MSME participation. The RBI's intervention bridges the gap between policy mandates (requiring large buyers to register) and practical MSME access.

  • The MSME sector contributes approximately 30% of India's GDP and over 45% of exports.
  • The MSME Development Act, 2006 (amended 2020) defines MSMEs by investment in plant and machinery and turnover: micro (investment ≤ ₹1 crore, turnover ≤ ₹5 crore), small (≤ ₹10 crore, ≤ ₹50 crore), medium (≤ ₹50 crore, ≤ ₹250 crore).
  • Delayed payments to MSMEs beyond 45 days attract compound interest at three times the RBI's bank rate under the MSMED Act, 2006.
  • SIDBI (Small Industries Development Bank of India) is the principal financial institution for MSME credit; TReDS is a market-based complement to SIDBI-led lending.

Connection to this news: Easier TReDS onboarding strengthens the market-based financing ecosystem for MSMEs, complementing statutory protections (delayed payment rules) with practical liquidity access.

RBI's Monetary Policy Developmental Role

Beyond setting interest rates, the RBI uses its monetary policy statements to announce developmental and regulatory measures. The April 2026 policy announcement bundled the TReDS simplification with other liquidity and banking regulation measures. This reflects the RBI's dual mandate of monetary stability and financial system development under the Reserve Bank of India Act, 1934.

  • RBI Act, 1934, Section 45ZA–45ZL: statutory basis for the Monetary Policy Framework and the Monetary Policy Committee (MPC).
  • The RBI's developmental role includes promoting financial inclusion, credit flow to priority sectors (Priority Sector Lending norms), and institutional infrastructure like TReDS.
  • Priority Sector Lending (PSL) mandates: commercial banks must lend 40% of Adjusted Net Bank Credit (ANBC) to priority sectors, of which MSMEs form a part.

Connection to this news: Announcing TReDS simplification alongside the rate decision reflects how the RBI uses its monetary policy platform to simultaneously address structural financing gaps in the real economy.

Key Facts & Data

  • TReDS regulated under: Payment and Settlement Systems Act, 2007
  • Three licensed TReDS platforms: RXIL, M1xchange, C2treds
  • Mandatory TReDS registration threshold: companies with turnover > ₹250 crore and all CPSEs
  • MSME definition (investment/turnover): Micro ≤ ₹1 cr / ₹5 cr; Small ≤ ₹10 cr / ₹50 cr; Medium ≤ ₹50 cr / ₹250 cr
  • MSME delayed payment interest: 3× RBI bank rate (compound) beyond 45 days
  • MSME contribution to GDP: ~30%; to exports: >45%
  • Proposed change: dispensing with due diligence requirement for MSMEs at onboarding stage
  • Next step: draft directions to be issued for public consultation