Ratings have enhanced SMEs' access to funds and helped reduce borrowing costs: Crisil

April 19, 2011 CRISIL has said that ratings have enhanced SMEs' access to funds and helped reduce borrowing costs. Credit support to CRISIL-rated SMEs grew by 30 per cent, as against the sector average of 20 per cent during the last 2 years. The analysis also reveals that rated SMEs have saved upwards of Rs 175 crores in interest costs alone, with interest rate reductions ranging between 0.5% to 1.25% annually. More than 40% of the rated enterprises chose to renew their ratings year after year, a testimony to the benefits arising from the rating.

CRISIL has also conducted studies on the rated entities and provided insights into three crucial issues facing the sector, namely rising interest rates, bank finance and delayed payments from large customers.

First, SMEs are indeed vulnerable to high interest rates. A 1 per cent increase in interest rates would lead to a decline of 14 per cent, on average, in the SMEs' profits. Second, while the banks have been lending to the SME sector, there is still scope for additional funding, which could be as large as Rs 500 bn annually. Lastly, SMEs with large corporate customers typically faced a delay of at least 30- 45 days in receiving payments from large customers. SMEs could enhance profitability by over 15% if they received payments from large customers in time.

Besides the benefits arising from competitive funding support from banks, SME ratings are bringing a structural shift in Indian credit markets by exposing SMEs to best practices and standards.

According to NSIC Chairman cum Managing Director, Dr. H.P. Kumar, "The concept of external ratings has helped micro, small and medium enterprises (MSMEs) achieve an independent identity, access funds, attract foreign interest and develop growth strategies. This is a unique scheme devised by NSIC for MSMES in the International Financial Sector."

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