‘Banks and rating agencies should change their perspective on MSMEs’

Banks and rating agencies in India need to change their rating yardsticks for MSMEs (micro, small and medium enterprises) to support the growth of the sector, said an eminent business leader.

They should change their perspective towards MSMEs and become more inspiring to small units.

“One of the things that I keep telling is about banks and rating agencies’ approach towards MSMEs. They are using the same yardsticks to measure the performance of an MSME unit as they do for a $10-billion company – whether it’s Reliance Industries or an MSME, banks and rating agencies use the same yardsticks. This is not the right approach,” Ravi Uppal, who held top positions at Jindal Steel & Power, L&T, ABB and Volvo India, told BusinessLine.

Resource limitations

Banks and rating agencies should know the resource limitations with which MSMEs operate. Without realising that, they use the same yardstick applied to big giants. As a result, only a very few out of the 6.5 million MSMEs in the country are able to secure better ratings, which will help access capital at lower costs.

Banks and rating agencies should encourage MSMEs, measure the performance based on the limitations with which they operate and inspire them to do better. Whether it is a micro, small or medium, the company is gradually inching up. None of them will come with 25 per cent RoC (return on capital). So, they deserve a different yardstick to assess them, said Uppal.

If MSMEscontinue to be chained with inappropriate yardsticks and outdated technologies, it will not be possible for India to achieve the goals of Atmanirbhar Mission or $5-trillion economy.

Uppal is of the view that if the root cause of the problem was addressed, other things such as securing capital and cheap credit would fall in place and solve most of problems of MSMEs.

He has one suggestion for banks, too. There should be one key parameter that banks should take into account while extending credit to MSMEs – they must ensure that MSME units have a basic digital education. Otherwise, banks would have signed their death warrant on the day they are born. Digital empowerment is essential in the MSME sector for their future growth and survival, he said.