As MSME Ministry makes amendments in norms for Credit Rating Scheme, MSMEs say scrap rating system

New Delhi, Sep 14 (KNN) Despite consistent plea of the credit-hit MSME sector to do away with the third party Credit Rating mechanism, the government seems to be in no mood to abolish it at this point of time.

In a recent notification, the Ministry of MSME has made amendments in the guidelines of Performance & Credit Rating (PCR) Scheme for MSEs.

It has added certain new claws to the existing guidelines which clearly indicates that the intention of the government is to continue with it as of now rather than abolishing it.

The MSMEs have been pointing out that the benefits of  credit rating schemes have not gone down well to the sector so far because the rating given by the agencies are much inferior to those given by their own lender banks, causing problems for the MSMEs.

A vast majority of MSMEs who went for Credit rating using subsidy did not renew their rating in the following years as they did not see any value.  They have been urging that the amount earmarked for the scheme should be kept in abeyance until a way out is found or it should be utilized under more useful heads of expenditure.

The MSME sector has been consistently raising the issue that because of rising NPAs in banks due to their over exposure in sectors such as consumer loans, infrastructure, mining and telecom, banks are demanding additional collateral securities even from the existing MSME borrowers.

There were many cases reported where third party rating recommended by RBI had been used for pressurizing MSMEs for additional collaterals and reduction in credit exposure on individual exposures falling under the ‘non-investment’ credit rating.

Some experts pointed the fall out of BLR rating mechanism for MSMEs where one is benchmarked with a large industry leader on parameters such as market share and other financial ratios.

The industry bodies for MSMEs have been demanding to do away with the BLR rating, if not, they have urged to increase the threshold limit for the same. 

Industry experts have even suggested setting up of a Credit Rating Ombudsman comprising of eminent experts from banking and rating industry to look at grievances from the industry, including review of credit ratings assigned by the rating agencies.

They have also urged the RBI to ask banks to review their internal rating mechanism and make amends in their system based on the experience gathered during the last seven years.

In its notification, the MSME Ministry has made addition to Clause 8 in the Guidelines for PCR Scheme for MSEs.

It said the rating report submitted by CRA should contain a list of items including –Rating Assigned, SWOT – Strengths & Risk Factors, Financial Profile etc.

Also, it said in place of copy of audited accounts (if not available) for last three years, copy of three years of certified accounts has to be submitted. The new system would be applicable from September 1, 2016. (KNN Bureau)