The Hindu Business Line : Experts justify SME credit rating

EXPERTS at the seminar on credit rating for SMEs were of the view that the mechanism of rating of small-scale industries is a formal step in the right direction to revitalise SSIs.

Speaking at the seminar organised by CII-Kerala, Mr K.P. Kamalakaran, Senior Manager, National Small Industries Corporation Ltd (NSIC) said that as the fast changing global economic scenario has brought many challenges and opportunities, the mechanism of rating of SSI's would avert the risks caused by these changes.

A good rating also enhances the acceptability of the SSI units with banks, FIs, SSI's customers and buyers. It also facilitates prompter credit decisions from banks on proposal of SSI units, he said.

Highlighting Crisil's attempt to develop a customised credit rating method, Mr Rajendra Lodd, Manager, Business Development, Crisil said that special rating scheme is focussed on bringing benefits to SSIs and accommodates specific industries and issues.

It requires less information and the reliability is based on the data collected from stakeholders and beneficiaries. He pointed out that Crisil has pioneered the concept rating in India.

The SSI-RAM software model developed by the agency is being used by a number of nationalised banks and financial institutions.

Mr Lodd said that the new rating would help a company in easy approach to various banks and also facilitates in getting cheap interest rates on loans.

Mr Ninan Vargis, Assistant General Manger, SBI, Small Enterprises Credit Cell briefed the participants on the SBI rating process and its benefits.

He said that the NSIC scheme is expected to produce good rating, which in turn will enhance acceptability in the market, access to credit becomes quicker and cheaper.

It would also infuse a sense of confidence amongst buyers. The negatives of the NSIC scheme were that it has still not found acceptability among the banks, primarily since they were doubtful about its feasibility.

Mr P. Mohanan, Deputy General Manager, Canara Bank, focused on the manual rating process.

He defined credit risk as the likelihood of a borrower not honouring his financial obligation in a timely manner.

Credit risk constitutes default risk, exposure risk and recovery risk. Credit risk is inherent in all banking activities and banking failures can be attributed to poor credit risk management.

He pointed out that new forms of financial transactions like securitisation and credit derivatives are emerging and all these have made measuring risk a necessity.

Mr Vijay Narayan Govind, Member, Economic Affairs Panel, CII-Kerala, focussed on the shift in the nature of activities of SMEs, which have become competitive and currently use cutting-edge technology.

Credit rating schemes have become a path-breaking measure. The best part of the scheme is that the Government will meet 75 per cent of the cost of the credit, he added.

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