credit rating of smes: the india...
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Confidential | © SMERA Ratings Limited
Credit Rating of SMEs: The India Experience
Sankar ChakrabortiChief Executive OfficerSMERA Ratings LimitedDate: 1st September 2015Location: Turkey, Istanbul
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Confidential | © SMERA Ratings Limited
Flow of the Presentation
Why credit rating of SME’s?
How Successful is Rating of SME’s in India?
What did SMERA’s SME Ratings help the stakeholders achieve?
Why is SME Rating so crucial for India and other developing countries?
What next?
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About SMERA
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• Promoted by Small Industries Development Bank of India (SIDBI) and Dun & Bradstreet India (D&B).
• Accredited by Reserve Bank of India (RBI); registered with Securities and Exchange Board of India, (SEBI) to
provide rating / grading services
• Other shareholders include - eight private sector and two public sector banks of India.
• Rated over 36,000 SMEs of, across industries.
• SMERA has offices in over 12 cities of India.
Over the last 10 years, SMERA has built its reputation for accurate assessment or risk, prompt delivery of
service and high commitment towards clients.
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Why credit rating of SMEs?
SMEs in India do not have easy access to debt/capital markets
Primary source of funding is Banks
26.71 trillion USD is the estimated need of funds of which only 25% is met by banking system. The rest comes through unorganized money lenders, friends and relatives
Timely availability of funds and the cost of fund is the most serious problem for growth
High information asymmetry leads to lack of trust for the segment
Hence any transaction whether it is an application for funds, equity or sales requires timely, reliable, independent opinion on credit quality, and future performance
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Rating of SMEs in India
120,000 SME entities are rated so far since the beginning of the concept in
2005
Supported by a subsidy available from Government of India
Support from all banks in India through interest rate benefit
Huge opportunity : Population of SME entities (Est. 35 to 45 million in India)
USD 800 – 1000 per assignment within reach of the micro and small entities
Highest standard of analytical rigor through efficient process
o Site visit/management interaction
o Use of high quality database and benchmarks
o Automation of workflows
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Over 15000 rated units stand to benefit in terms of borrowing cost
Over 17% profit growth for rated, higher than that of unrated universe
More than 30% growth in bank credit against 19 % credit growth for SME sector
Approximate sales increase of 25%
Creating employment opportunities
Impact of Ratings towards SME sector
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SME Rating : Building the stakeholders confidence
Information Availability
Financial Reporting Standards
Management /Infrastructure Quality
Mindset - To show less turnover; for saving tax
SME Rating bridging the trust
deficiency
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Provide Credit Ratings to SMEs
Provide SME / Project Grading Services to banks
Complement efforts of SME Development Institutions
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Show-case high-performing SMEs to global audience
Improve lending environment
SME Cluster Studies
What can a SME centric rating agency do?
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About NSIC-D&B-SMERA Rating
Rating Scale of NSIC-D&B SMERA Rating
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• SMERA scale considers two parameters for rating – Performance capability and Financial strength
• Performance capability is measured on the scale of one to five, with one being the highest and five, the poor
• Financial strength is measured on the scale of ‘A’ to ‘C’, with ‘A’ being the high financial strength and ‘C’ being the low financial strength
ParametersFinancial Strength
Scale High Moderate Low
Performance Capability
Highest SE 1A SE 1B SE 1C
High SE 2A SE 2B SE 2C
Moderate SE 3A SE 3B SE 3C
Weak SE 4A SE 4B SE 4C
Poor SE 5A SE 5B SE 5C
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Rating Factor Schema
Financial Parameters Non-Financial Parameters
Solvency Liquidity ActivityProfitability
Industry Risk
Business Risk
Management Risk
Trend Analysis
Over-riding factors
Project Risk
Standard Rating Methodology & Criteria
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Snapshot of SME Report
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SME Cluster reports
Help policymakers in formulating SME friendly policies
Help strategists at Banks
Database & Benchmarking
Help Banks in identifying opportunities
Help creditors take lending decisions
Expand coverage of more SME
Training of SMEs to help
them grow profitably.
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What next?
Strategic tie ups with local bodies for
promotion of SMEs within their country
Confidential | © SMERA Ratings Limited 13
THANK YOU
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