New norms of performance in Credit Rating Scheme

The Dollar Business Bureau

The Indian government has approved the new norms of Performance of MSMEs in the Credit Rating Scheme. These guidelines are sanctioned to enhance the credibility for the borrowers as well as banks. As per the new guidelines, the Micro, Small and Medium Enterprises (MSMEs) shall pay a fee to credit rating agencies based on their turnover.   

The credit rating agency fee in turn has been further classified under three slabs based on the turnover.

The MSME Ministry will reimburse 75% of the rating agency fee to a maximum of Rs.15,000 for a turnover up to Rs.50 lakh, to a maximum of Rs.30,000 for a turnover between Rs.50 lakh and Rs.2 crore, and to a maximum of Rs.40,000 for MSMEs with a turnover beyond Rs. 2 crore, according to the new guidelines of the government.  

Under this scheme, other than the credit rating agencies registered by the Securities and Exchange Board of India (SEBI), the External Credit Assessment Institution (ECAI) is also eligible to provide rating to the MSMEs. To avail subsidies, the rating agency must apply on the National Small Industries Corporation (NSIC) web portal and approval taken within a month, the ministry said.  

It further said that an MSME unit's rating should be provided in terms of its performance as well as credit worthiness. The rating procedure shall have both performance and credit factors that include parameters on operational, financial and management risks. The Rating Scheme is expected to boost the MSME sector in additional contribution to the country’s economy.

Better rating to an MSME would result in more acceptability in the marketplace which would provide access to fast and affordable credit facilities. The rating will also instil confidence among the buyers in taking an informed decision on available options while sourcing material from the MSMEs, the ministry added.   

The tenure of the application submitted by the rating agency is six months. The MSME units need to submit complete documents to the agency which shall finish the rating process in two months from the date of application received with the documents. The rating validity is meant for one year from the issued date of rating.