Despite the global headwinds, India continues to remain the world’s fastest-growing economy. This means that all the engines of our GDP are moving at speed from FMCG, logistics to auto components and pharmaceuticals. But behind this growth lies a challenge that persists: the working capital gap. Indian corporates hold ₹25–30 lakh crore in Trade Receivables on their balance sheets at any point in time.

Credit intermediation in India has struggled to keep pace, even as industrial output and consumer demand have grown in recent years. The gap lies between the required short-term operating credit and the available supply of capital that is not only flexible, but also non-dilutive. Simultaneously, changing investor preferences due to volatility in public markets and declining yields in traditional fixed income are increasing the need for short-duration, predictable income-producing assets, supporting alternative credit structures.

Bridging this gap is essential, and this could be achieved through wide-scale adoption of Trade Receivable Securitisation (TRS).

Why Traditional Credit Hits a Ceiling

Primarily, Indian industries have relied on two core pillars to meet their working capital requirements: Commercial banks and NBFCs. But here’s where the challenge lies.

Banks and NBFCs remain inherently selective, tied by “hard” collateral needs and regulatory capital compliance. Bank/NBFC SCF programs are structurally buyer-centric where each buyer requires individual onboarding, credit assessment, and limit sanction. This design works for a corporate’s top 20 buyers who are rated or well-documented counterparties. It faces constraints for the next tier of buyers. MSME distributors, new channel entrants, and unrated dealers either don’t qualify or need to provide hard collateral. This has, to a significant extent, hindered their capability to provide credit to the deeper tiers of the supply chain, where the requirement of short-term liquidity is the greatest. 

This has further created a credit squeeze for middle players in the supply chain, such as a mid-sized auto component manufacturer or a pharmaceutical distributor. For them, obtaining capital that doesn’t trim the equity stake or over-leveraging the balance sheet, has become challenging. This has also opened the door for private credit to take on a more proactive role, especially in sectors where funding can be utilized for detailed, short-term cash flows instead of extended corporate exposure.

TRS – Balance sheet efficient, working capital solution

Trade Receivable Securitisation is the process of pooling a portfolio of trade receivables, such as unpaid accepted invoices (obligations that buyers have formally acknowledged as payable), and converting them into tradable financial instruments. This isn’t a one-off transaction, as the securitisation involves a remote-Special Purpose Vehicle (SPV) that purchases these receivables. Subsequently, the SPV issues Pass-Through Certificates (PTCs) to investors.

This structure makes TRS a kind of asset alchemy, as it instantly converts illiquid unpaid invoices into tradable capital raising instruments. Also, what makes TRS structurally distinct from factoring or bank supply chain finance is portfolio-level underwriting. TRS assesses the pool of invoices: concentration limits, pool cover ratios, and credit enhancement absorb buyer-level risk without requiring individual onboarding. This solves one of the key problems in traditional SCF where banks need to assess each buyer individually, resulting in MSME buyers, unrated distributors, and new channel partners not receiving financing because they fail individual credit filters. 

Importantly, these instruments are usually released within a controlled securitisation structure, with pass-through certificates frequently assessed by external credit rating agencies, maintained in dematerialised format, and monitored by trustees – providing institutional-level governance and clarity.

This creates a win-win situation for all stakeholders, as the credit raised is asset-backed and not liability-led. What’s in focus here is the underlying trade assets – the suppliers’ invoices that reflect receivables from underlying trade, and not the seller’s balance sheet.

Also, the presence of an SPV establishes bankruptcy remoteness, making the asset class ring-fenced. The investors’ claim on the pool of invoices remains secure, even if the originating company faces financial distress.

Real-World Efficacy

The efficacy of TRS appears evident when one looks at its application in sectors impacted by varying payment cycles and fragmented supply chains.

For instance, in a pharmaceutical/FMCG sector, where goods move through a complex web of distributors and retailers’ credit is the norm. The manufacturer can sustain their working capital cycle by securitising the receivables from hundreds of distributors.

So, TRS here helps the pharma/FMCG seller to improve its Days Sales Outstanding (DSO), while also strengthening the balance sheet by limiting the need for loans. At the same time, the sheer granularity of the pool – thousands of small invoices create a low-risk investment profile for institutional investors.

For corporate sellers, it means access to quick funds without diluting the equity or resorting to traditional high-interest debt. Securitisation also permits companies to remove receivables from their balance sheet, thereby improving key financial ratios like Return on Assets (ROA) and Cash Ratio.

For investors, TRS can offer high-yield investment in a short duration. Also, it allows investors to gain exposure to the “real economy”, as their returns are directly linked to the actual flow of goods and services, rather than just corporate credit.

In addition to corporate adoption, TRS is gaining recognition as a viable private credit asset class, drawing interest from family offices, debt mutual funds, performing credit funds (cat 2 AIFs) and savvy investors looking for stable, short-term yield prospects.

 This shows that TRS offers a strategic financing solution to corporate sellers, as well as an attractive investment opportunity for investors.

Mainstream Financing Solution

In India’s changing financial landscape, TRS can no longer be seen as a niche finance product. Instead, it’s bound to become a mainstream financing solution for supply chains. 

With the expansion of investor involvement and the growth of private credit markets, TRS is well-positioned to direct capital more effectively into trade ecosystems, connecting capital providers with companies requiring adaptable liquidity.

India’s TRS market is in early institutional adoption. SEBI’s SDI Regulations provide the legal framework; rating agencies are building track records on multi-replenishment pools; and investor familiarity with PTC structures is deepening. The next phase of growth will come from mid-sized corporates, those with ₹500 crore to ₹5,000 crore in revenues and wide, granular buyer bases; where the receivables are large enough to structure efficiently but where bank credit filters leave substantial coverage gaps. For treasury teams and CFOs in these companies, TRS warrants a serious balance sheet conversation in the next planning cycle.

Also Read : Optimizing Working Capital with Trade Receivables Securitization: A Strategic Approach to Corporate Finance