IMPACT OF CREDIT RATING

ON MSME

GROUP 8
AKHIL SONTHALIA
HITESH RUSTAGI
PRATHIMA S VADANA
SHILPA SINHA
ZAIBY ZAHID
FOCUS OF THE ARTICLE
 CREDIT RATING agencies in India like CRISIL
& SMERA and their impact on SMEs.
 growth rate of SME sector in India is 12.6%
per annum
 only less than 15% of SMEs have access to
institutional funds
 CRISIL & SMERA came into picture in 2005
 CRISIL-Credit Rating and Information
Services of India Ltd.
 SMERA-The Small and Medium Enterprises
Rating Agency
CONTD…..
 Most of the banks agree to provide
preferential terms on loans to SMEs rated by
SMERA and CRISIL
 CRISIL & SMERA provide a credible basis of
evaluation, a neutral assessments of SMEs
credit worthiness
 With Basel II norms becoming applicable to
banks, credit rating agencies play an
important role in facilitating lending process.
 These ratings help SMEs position their credit
profile to banks effectively and funds at a
slightly lower rate of interest , it also gives
lender a higher level of comfort.
FOCUS CONT….
 Credit rating agencies on their part wish
government to use ratings for all their
schemes for SMEs
 Encourage PSUs to use ratings as an
effective differentiator for their vendors;
and banks to use ratings more centrally in
their credit risk appraisal process
 Ministry of MSME has been subsidising the
fees for SME sector for assessment but
that’s available only for a year
 It would be better if some amount of
subsidy is made available for at least three
consecutive years
FOCUS CONT…
 FISME believes that only few people benefit
out of these ratings so what required is:
 Regulation of these rating companies, their
methodology and fee structure,
 a thorough risk assessment of different
SME segments to help assign risk
weightage only after thorough investigation
;
 encouraging other rating companies
including those promoted by SMEs
collectively to reduce cost and increase
outreach within RBI/SEBI guidelines
 A larger percentage of SMEs are still ignorant
or unaware of credit rating so these agencies
are organising and participating in various
programmes to promote the benefits that
can be leveraged through credit rating.
 With banks becoming stricter on their
parameters for appraisal credit rating
agencies are set to play a greater role in
leveraging the SME segment
RELEVANCE
 Indicator of the SME’s performance capability and
financial strength.
 CR helps to assess credibility of the SME.
 Carries weight with lenders, and can help an SME to
get faster and easy flow of credit.
 CRAs provide ratings that are comprehensive,
transparent and reliable.
 Higher the rating or score the SME gets from CRAs,
lower the IR
 To boost their impression and secure more business.
 Solves this credit risk dilemma of the banks & FIs
 Distinguishes between good accounts and applicants
who are likely to be bad accounts.
 CR helps SMEs position their credit profile to banks
effective.
BENEFITS
 An integral part of the framework for credit
and investment decisions relating to MSMEs.
 Creates exciting lending opportunities for
banks and financial institutions.
 SMEs can leverage their ratings for
negotiating better borrowing rates
 Provide an important impetus in raising
standards
 Credit rating has become an important
feedback tool for the management.
MISCONCEPTIONS
 SMEs will only get low ratings because
of their smaller size.
 Several questions on information risk
whether SMEs be able to provide
quality, reliable information required for
a credit rating exercise or not.
 SMEs will find fees of rating agencies
unaffordable.
ARTICLE LITERATURE
 MSMEs makes beeline for credit rating for
cheaper loans

 How small businesses are faring with bank

reforms

 Indian SMEs are witnessing an increasing

inflow of investments from private equity
firms

 How well do the banks know their SME

clients
THANK YOU