The Factoring Regulation Act & CERSAI Filing: What Changed in 2021-22

The Factoring Regulation Act, 2011 sets the rules for how receivables are assigned to a “factor,” how factors register with the RBI, and how each transaction is filed with the Central Registry (CERSAI). The Factoring Regulation (Amendment) Act, 2021 — in force 23 August 2021 — widened who could factor and simplified that filing. But RBI’s 2022 regulations then restored a principal-business test, leaving the practical eligible pool in the low hundreds, not the thousands the headlines claim.

This is the legal plumbing beneath every factoring and reverse-factoring transaction in India — and most summaries get the headline number badly wrong.

In one line: the 2021 Amendment opened the door to more NBFC-Factors and made TReDS file your CERSAI particulars for you within 10 days, but RBI’s 2022 Factors Regulations quietly re-narrowed the door — the law that lets institutional liquidity ride your anchor’s rating, off the seller’s balance sheet, is more conditional than the “9,000 NBFCs” headline suggests.

Factoring is one of the channels that make up supply chain finance — the anchor-led toolkit that puts a financier’s capital against approved invoices owed by a strong buyer to its suppliers. Our guide to factoring covers how an invoice is sold; this article covers the law that makes that sale enforceable, registrable and — crucially — bankable.

The parent Act, in plain terms

The Factoring Regulation Act, 2011 does three things. It defines the assignment of receivables to a factor — the legal sale of an invoice. It requires factors to register with the RBI. And it requires every factoring transaction to be registered with the Central Registry (CERSAI), so that anyone checking a debtor’s receivables can see they have already been assigned. That public registration is what stops the same invoice being financed twice and gives the factor a clean, prior claim.

For more than a decade the Act’s reach was narrow. Only banks and a small set of dedicated NBFC-Factors could legally factor, because an NBFC qualified only if factoring was its principal business (broadly, more than half its assets or income). That principal-business gate is the hinge on which the whole 2021-22 story turns.

What the 2021 Amendment changed

The Factoring Regulation (Amendment) Act, 2021 (Act No. 21 of 2021) came into force on 23 August 2021 (Ministry of Law & Justice notification dated 19 August 2021). It made three load-bearing changes:

The intent was liberalisation — more lenders competing to factor MSME invoices, more liquidity into the receivables market. The execution proved more nuanced.

The “9,000 NBFCs” myth — and what really happened

This is the single most-repeated error in Indian factoring commentary, so it is worth being precise.

The 2021 statute did remove the principal-business gate, and at the time the government’s stated expectation was that roughly 9,500 NBFCs could become eligible to factor. That projection then took on a life of its own as a statement of current law. It never was one.

Through delegated legislation — the Registration of Factors (Reserve Bank) Regulations, 2022 (notified 14 January 2022) — RBI reintroduced a principal-business / asset-income test. An NBFC that wants to factor without meeting that test must still clear asset and income thresholds; others must register specifically. The result: the eligible and registered NBFC-Factor pool rose from roughly 7 (names like Canbank Factors, SBI Global Factors, India Factoring, IFCI Factors) to about 182 — a real, meaningful expansion, but in the low hundreds, not the thousands the headline implies.

Safe framing for any CFO conversation: the 2021 Act removed the statutory principal-business gate (the government expected ~9,500 NBFCs to qualify), but RBI’s 2022 Factors Regulations restored a principal-business test, so the practical eligible pool is roughly 182 NBFC-Factors. Never state that “9,000 NBFCs can now factor” — it is wrong as a statement of live law.

CERSAI and the assignment-of-receivables filing

The second pillar of the framework is registration with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). Every assignment of receivables to a factor must be filed there so the claim sits on the public record. Historically the factor filed each transaction itself — a heavy operational burden at invoice-level volumes.

The Registration of Assignment of Receivables (Reserve Bank) Regulations, 2022 (effective 17 January 2022) fixed this for the platform channel. Where receivables are financed through a TReDS platform, the platform files the particulars with CERSAI on the factor’s behalf within 10 days of the assignment (Form I). That lifts the per-factor filing load off the highest-volume channel and is one reason TReDS scales the way it does — the registration plumbing is handled centrally.

Two points worth holding onto: filing is mandatory, not optional; and the 10-day, platform-files-for-you mechanic is a TReDS-specific carve-out, not the rule for bilateral bank or NBFC factoring, where the factor remains responsible for its own CERSAI registration.

Recourse, true sale and why the law matters commercially

The Act governs assignment — the legal sale — but whether that sale is with or without recourse drives the accounting. A without-recourse true factoring sale, where the financier buys the receivable and bears buyer default, can support de-recognition of the receivable for the seller under Ind AS 109: the financing comes off the seller’s balance sheet, provided the true-sale tests are met. A with-recourse arrangement, where the seller stays liable on default, is economically a secured borrowing and typically stays on balance sheet. Our explainer on recourse vs non-recourse factoring unpacks where each line falls. On TReDS specifically, the structure is without recourse to the MSME seller once the buyer accepts the invoice — part of why it supports clean de-recognition.

This legal detail is commercial, not academic. A properly registered, without-recourse assignment is what lets an MSME turn a 60-day receivable into cash today at a rate driven by its anchor buyer’s rating rather than its own — the core of the reverse-factoring and vendor-finance structures every anchor programme is built on.

Why this framework exists at all

The problem the Act addresses is enormous. The RBI’s U.K. Sinha Expert Committee on MSMEs (2019) put India’s MSME credit gap at roughly ₹20–25 lakh crore — the structural shortfall that a functioning, well-registered factoring market exists to help close. A clean assignment regime, a registry that prevents double-financing, and a widened (if re-narrowed) factor pool are the legal preconditions for that capital to flow. As a marker of how far the registered-factoring rail has scaled, TReDS throughput reached around ₹2.35 lakh crore in FY25 (platform and press reporting) — real progress, but still a fraction of the gap.

FAQ

What is the Factoring Regulation Act, 2011? It is the Indian law governing the assignment of receivables to a “factor,” the registration of factors with the RBI, and the registration of each factoring transaction with the Central Registry (CERSAI). In short, it is the legal framework that makes selling an invoice to a financier enforceable, publicly recorded and protected from the same receivable being financed twice.

What did the 2021 Amendment actually change? The Factoring Regulation (Amendment) Act, 2021 (in force 23 August 2021) removed the statutory “principal-business” gate that had limited factoring to dedicated NBFC-Factors, gave RBI rule-making power over registration and CERSAI filing, and aligned key definitions with international usage. Its practical effect was widened eligibility and simplified, platform-led CERSAI filing for TReDS transactions.

Can ~9,000 NBFCs now do factoring? No — this is a common error. The 2021 statute removed the principal-business gate (the government expected ~9,500 NBFCs to qualify), but RBI’s Registration of Factors Regulations, 2022 reintroduced a principal-business / asset-income test. The practical eligible pool is roughly 182 NBFC-Factors, up from about 7 — in the low hundreds, not thousands.

What is CERSAI filing and who does it? CERSAI is the Central Registry where every assignment of receivables to a factor must be recorded, so the factor’s claim is on the public record. For bilateral bank or NBFC factoring, the factor files itself. For receivables financed through TReDS, the platform files the particulars with CERSAI on the factor’s behalf within 10 days of assignment, under the Registration of Assignment of Receivables Regulations, 2022.

Does factoring under the Act take financing off my balance sheet? Conditionally. A without-recourse true sale (as on TReDS) can support de-recognition of the receivable for the seller under Ind AS 109, taking it off the books — but only if the true-sale tests are met. A with-recourse arrangement is economically a secured borrowing and usually stays on balance sheet. Always confirm the accounting treatment with your auditor before assuming it is off-balance-sheet.

Structuring a factoring or anchor-led programme that registers cleanly and prices off your anchor’s rating? Talk to our supply chain finance practice — CA- and ex-banker-led, channel-agnostic across TReDS, banks and NBFCs. Part of Finnova’s ₹4,250 Cr+ mobilised across 100+ corporate-finance mandates since 2011.