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28/02/2020 02:44pm

MSMEs cry foul as SEBI’s directive leading to exploitation by Credit Rating Agencies

image MSMEs cry foul as SEBI’s directive leading to exploitation by Credit Rating Agencies

New Delhi, Feb 28 (KNN) The Federation of Indian Micro and Small and Medium Enterprises (FISME) has applauded the statement of Finance Minister Nirmala Sitharaman in which she warned banks against trusting Credit Rating Agencies (CRAs) blindly.

She was releasing the new reform agenda EASE 3.0 promising smart, tech-enabled banking in Public Sector Banks on Wednesday in New Delhi.

MSMEs have found a resonance of their grievances in the FM’s exhortation of bankers.

“Credit Rating Agencies are inflicting untold miseries on MSME sector. The CRAs are governed by SEBI Rules meant for listed companies but the same CRAs are let loose by RBI on small and medium sized unlisted companies for Bank Loan Ratings”, says Anil Bhardwaj, Secretary General of FISME.   

“Firstly using more or less the same format as used for listed companies,  they put onerous demand of information which MSMEs can’t provide and failing which downgrade their ratings leading to higher cost of finance for them” he added.

As interaction of MSMEs at branch level is greater and branch level staff is appreciative of wellbeing of an MSME, the banking system tend to rely ‘blindly’ on the rating by CRAs than the recommendations of the staff.

FISME has been demanding doing away with requirement of BLR rating as it serves the interests of neither lender nor borrower.  

MSMEs are at mercy of CRAs and instances of exploitation are common.

‘If due to exorbitant fee an MSME decides to change the CRA, the incumbent CRA threaten and many a times does downgrade the rating citing non-cooperation of enterprises in giving information”, shared an MSME owner on the condition of anonymity.  

‘For withdrawal also an exorbitant fee is being charged by CRAs”, he lamented.

Industry experts blame the SEBI circular of January 03, 2020 para 3 (a) for exploitation of MSMEs. The circular stipulates  “If non-cooperation by the issuer continues for further six months from the date of downgrade to non-investment grade, no CRA shall assign any new ratings to such issuer until the issuer resumes cooperation or the rating is withdrawn’.

This has given enormous powers to CRAs to force hapless MSMEs for unbridled fee and if their demands are not met downgrading them citing non-cooperation and further binding hands of MSMEs from taking rating from other competing agencies.

Provisions which were meant for public listed companies have become a stone in the neck of MSMEs.

According to RBI advisory to banks, all accounts having exposure of more than Rs 5 Crore are required to be rated by CRAs.

While RBI maintains that this requirement is not ‘mandatory’, banks insist on external rating and do not sanction or extend credit facility without one. (KNN Bureau)

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