UP MSMEs rebuff credit rating, risk competitiveness

The lack of general awareness among the Micro, Small and Medium Enterprises (MSMEs) in Uttar Pradesh towards credit rating is impeding their competitiveness and access to cheap credit.

While, the window to cheaper credit by banks is closed if a unit is not credit rated, the comprehensive evaluation by a designated credit bureau, which could help the unit become more competitive, is missing.

UP is home to an estimated 1.2 million MSMEs, of which about 500,000 are registered.

However, less than 10 per cent of the registered MSMEs are estimated to have taken credit rating from agencies, such as ICRA, CRISIL, SME Rating Agency of India Limited (SMERA) etc.

SMERA is the baby of Small Industries Development Bank of India (SIDBI).

Credit rating is a report by a credit bureau based on detailed financial analysis of a unit’s financial history. It relates to the unit’s ability to meet obligations and this information is used by banks to decide on extending credit facility. A unit having a high credit rating gets credit at discounted rates.

“There is general low awareness towards credit rating in North India and UP is no exception. However, we are trying to create awareness in the MSME sector about the benefits of credit rating,” MSME apex chamber Indian Industries Association (IIA) executive director D S Verma told Business Standard.

National Small Industries Corporation (NSIC) provides 75 per cent subsidy to MSMEs for credit rating subject to a ceiling of Rs 40,000.

“Since, individual banks also perform their own risk analysis before extending credit to a unit, a majority of MSMEs feel the rating does not serve much purpose for them,” he added.

However, a credit rating is not just a statement for seeking loan, but an opportunity for an enterprise to assess its financial, production and marketing strength.

NSIC is also concerned at the low credit rating percentage of the MSMEs and is mulling tie-up with all the scheduled banks in the country.

“We have been holding workshops in association with banks and industry all over the state for creating awareness about credit rating,” NSIC general manager Sunil Bali said.

Besides, IIA is trying for an alliance with SIDBI for facilitating MSMEs get credit rating in UP. IIA’s proposal to SIDBI is in the pipeline.

“We propose to evaluate credit worthiness of the units and recommend SIDBI for their credit rating accordingly. SIDBI already has such an alliance in Haryana,” Verma informed.