UBI looks to enter factoring business

Source : FC: Falaknaaz Syed May 30 2010 , New Delhi

Public sector lender Union Bank of India is working on entering the domestic factoring


The bank is in preliminary talks with foreign players and may consider setting up a subsidiary, instead of a separate division within the bank.

“We will be entering domestic factoring business, which has volumes, and not international factoring. This could be done in a joint venture with a foreign player. The plans are at a drawing board stage and we will take a few months to finalise it, after which we will approach the Reserve Bank of India for a licence. Like other banks, which have set up subsidiaries for factoring, we will also set up a subsidiary,” Union Bank executive director S Raman told Financial Chronicle.

Factoring is a business of managing and financing receivables, designed to improve cash flow of sellers/exporters and cover their risk.

Unlike other financing services, factors do not ask for collateral.

The factor turns the seller’s invoices into cash and advances up to 90 per cent of the invoice value.

This helps sellers as they can have instant access to their earnings and do not have to wait for the usual long period to get paid by buyers.

Sellers will, therefore, have a healthier cash flow, helping them to accelerate growth.

In India, the turnover in factoring business was Rs 25,000 crore in 2009-10. It had a static growth due to the financial crisis.

More than 95 per cent of this turnover was domestic factoring.

The compounded annual growth rate for the factoring business is 30 per cent. Besides government-owned Export Credit Guarantee Corporation, there are several players in the factoring segment, including IFCI Factors, BB Financial Services, Tata Capital, HSBC Factors, Standard Chartered Factors, SBI Global Factors and Canbank Factors.