Of the total credit portfolio of micro, small and medium enterprises (MSME) sector of Rs 12 lakh crore, Rs 54,799 crore is at the risk of turning into non-performing assets (NPAs), according to TransUnion CIBIL, which released its ranking for the segment on Tuesday.
Called the CIBIL MSME
Rank (CMR), it provides a ranking to MSMEs based on their credit history data on a scale of 1 to 10, with CMR1 being the least risky and CMR10 being the riskiest. The rank is based on seven years of credit history data. The higher the CMR, the higher the risk of NPAs associated with the MSME. MSME
companies are classified as companies with an exposure of Rs 10 lakh to Rs 10 crore. The CMR will apply to 2.1 million MSMEs. The NPA
rate for MSMEs touched 8.7 per cent as of March 2016 and is expected to rise to 9.8 per cent as of March 2017. Companies in the CMR1 category have only a 1.4 per cent change of going into default, against companies in the CMR10 category that have more than 90 per cent chance of going into default. There are about 1.2 million MSMEs in the CMR1-CMR5 segment, which are good MSMEs that banks can lend to. The analysis is based on cash flows, demographic profile and poor past performance of MSMEs.
“The CMR will help lenders to lower the exposure to risky MSME
companies. Lenders can also approve loans faster and offer risk based pricing,” said Satish Pillai, MD and CEO, TransUnion CIBIL.
Currently, any loan above Rs 5 crore requires a rating by at least one rating agency according to Reserve Bank of India regulations.
This rating is based on financial disclosures available in the public domain and information disclosed by the companies. As against this, the CMR is based on repayment data provided by banks to TransUnion CIBIL. Both metrics are complimentary and lenders can use them together to decide whether to approve a loan or not and how much loan to sanction, Pillai added.