Date:08/04/2006 URL: http://www.thehindubusinessline.com/2006/04/08/stories/2006040804630100.htm

Back SME ratings yet to catch on, say bankers

Priya Nair

Rated units get lower-cost loans, merit faster processing

Mumbai , April 7

SMEs are getting more attention from banks due to the higher returns they afford compared to big corporates. However, the segment lags in rating.

While banks are willing to offer cheaper loans to rated SMEs, the very concept of rating hasn't caught on in the sector.

"We have a large portfolio of SMEs, but we don't see many who get themselves rated for better lending rates on their loans," said Mr Samir Bhatia, Country Head (Corporate Banking), HDFC Bank.

Rated SME units get up to 25-100 basis points reduction in interest rates on loans. They also merit faster turnaround time in processing, as banks get detailed opinions about the units.

According to Ms Roopa Kudva, Executive Director, Crisil, the key issue is reaching out to SME units, as they are spread all over the country.

"Tying up with banks for rating is the only way to spread awareness on the subject to SMEs. We also hold seminars and meetings in SME and SSI clusters," she added.

Bank officials, too, are to blame, for they aren't aware enough about rating. "Not just SME units, bank officials also have to be oriented towards ratings. Given rising interest rates, it is beneficial for SME units to get rated as they can then avail of loans at lower cost," said a senior official from Bank of Baroda.

To overcome the dependence on external rating agencies, IDBI has an internal SME rating model, said Mr G.V. Nageshwara Rao, Head of Consumer Banking SBU.

"Rating SMEs is a challenge. One needs to use a combination of market knowledge and the track record of the company. The rating is easier if the bank has a long-term relationship with the company."

Mr Rajesh Dubey, CEO of SMERA, a specialised SME rating agency, said: "Wherever we have signed up with banks and banks have issued instructions to their SME clients, they do come for ratings. But in cases where the bank has not issued instructions the SMEs do not come forward."

Crisil has tied up with seven banks and SMERA has tied up with 14 so far to extend ratings to SMEs. Both agencies are planning more tie-ups.

Rating agencies also look at non-financial parameters in the case of SMEs, such as relationship with suppliers and customers, default ratio, the order book, and so on.

Banks can encourage SMEs to get rated by offering incentives, Ms Kudva said. "If banks send 100 customers at one go, or if we rate whole clusters of SMEs, the cost can be reduced," she added.