Credit rating for MSME has exceeded the target this year with more than 7,000 companies being rated so far. This was disclosed today by Dr. H.P.Kumar, CMD, National Small Industries Corporation Ltd at a Seminar organized by PHD Chamber of Commerce on, “Credit rating of SME’s by banks and rating agencies”. Credit rating is an important tool for facilitating credit flow to the MSMEs. NSIC is trying to promote a uniform model for rating the companies through uniform documentation, scaling, fees, award of ratings etc. He said that recognition of ratings of enterprises done by external rating agencies by the banks is still not effective and remains a challenge.

According to Dr Kumar, as risk perception was still high among the banks for this sector and it would greatly benefit the MSME sector to get the credit rating done. In a survey done on impact of credit rating on companies, there was data available to show that credit rated companies had 67% higher customer recognition, 45% more customer queries, 60% showed increased in sales, 24% increased exports and these companies also developed good clientele base and capability to ask for better prices. 10% respondents reported availability of better interest rates, 23% experienced access to enhanced limits of credit, 22% reported improvement in quality of products & 16% in increased capacity utilization.

Mr. Dinesh Rai, Secretary, Ministry of MSME , GOI said that credit availability to the MSME sector was a priority and of great importance to the country as there are around 13 million units employing 42 million people and contributing to 40 % of the country’s exports and that MSMEs have to face competition from cheap imports.

An inter ministerial group has agreed that 6 % of priority sector lending should be  reserved for MSME sector though this had yet to be approved by RBI and Finance Ministry as overall share of SME sector in lending by banks is going down and is a cause of concern said Mr. Rai

“The biggest problem being faced by the smaller companies was that most bankers were not honoring any credit ratings by external credit rating agencies and were more comfortable rating the enterprises themselves which lead to different results and more paperwork.” said Mr. Satish Girotra, Chairman, Banking and financial services committee, PHD Chamber.  The industry felt that the Credit Rating Scheme had not achieved much popularity and requested Mr. Rai if providing some tangible benefits like reduction in rate of interest on credit for credit rated companies across the board could be considered which would motivate them to go for credit rating.

Shri Rakesh Rajput, senior official, RBI said that the credit rating would give the enterprises, important information on their other shortcomings apart from feedback on financial factors to help them in overall improvement and that the passage of Credit Information Companies Act would solve the problem of authentic information about the enterprises in due course