JJEM: Volume 2 Issue 2 (Jul - Dec 2018)
JJEM: Volume 2 Issue 2 (Jul - Dec 2018)
2018-12-30
Credit Rating for SME’s –A Bridge between Indian SMEs and Industrial Finance
Ashwini H. A., M. G. Krishnamurthy
The MSME’s have been an integral part of India’s Growth Story. SME’s contribute to almost 40% of the gross industrial value added in the Indian economy. SME’s have been emerging as a significant contributor in generation of employment, enhanced exports, import substitution and balanced development of regional economies. The biggest challenge to SMEs in India today is access to credit facilities from banks and financial institutions. The main reason for this problem is lack of efficient management tools in place, lack of knowledge of banking guidelines, ineffective mechanism to weigh the credit worthiness of the company and so on. Not to blame the banks and financial institutions alone for not providing required credit facilities, as they too have to cater to lending norms stipulated by the RBI and monitor the asset quality before deciding upon lending to SMEs. It is observed that due to emphasis given to MSME sector by the Government, especially under ‘Make in India’ initiative, the banks are ready to lend to SMEs on priority basis, provided the SMEs can prove their credit-worthiness and positively ensure the repayment of borrowed sum. To assure that the SMES are able to access banking system more and at the same time the banks are able to monitor their asset quality, SMEs can resort to Credit Rating of their firms. Credit rating is an independent third–party comprehensive assessment of the overall condition of an entity. It takes into account not only the financial condition of the entity but also several qualitative parameters that have bearing on its credit worthiness. The paper attempts to highlight the need for credit rating for SMEs, the benefits of credit rating, the important policy initiatives taken up by the government towards credit rating of SMEs, the process of credit rating for SMEs and the challenges faced by the SMEs in getting credit rating for their firms.
SMEs, Lending Norms, Credit worthiness, Asset Quality, Credit Rating.