High cost of credit ratings hurt SMEs

Many SMEs — manufacturers and exporters — find tedious paperwork and/ or filling in forms that contain financial jargon very difficult

Exporters in the critical small scale sector have been demanding that the regulatory provision requiring them to be rated by an external credit agency when applying for loans has not been conceded in the new foreign trade policy. Echoing their problems, former chairman of the Federation of Indian Exporters Organisations ( FIEO) Ramu Deora, had in a pre- policy note to the Prime Minister said that the banks’ insistence on credit rating to micro, small and medium exporters/ partnership proprietorship firms is an impediment for the export sector.

Speaking to this newspaper, he said, “credit rating has a high cost component, involves tedious paperwork/ filling nearly of forms with financial jargon which many SMEs who are manufacturer exporters as proprietorship/ partnership firms find difficult to comprehend.”

In India, 80- 90 per cent of the exporters are partnership or proprietorship concerns and barely ten each are public and private limited companies, particular- ly among diamond, gem and jewellery and handicraft sectors who are the biggest export earners. He said there are no separate guidelines for SMEs including proprietor and partnership firms.

He said banks have a much better understanding of their small and medium enterprise customers as their export earnings also come through the banks.

“The banks get regular statements running into nearly 70 pages of updates of their finances.

So they can identify and measure the risk in a more systematic/ robust way,” he said. Questioning the sanctity of the credit ratings of companies, Mr Deora said that many of the loans of companies rated by the external credit agencies have become non- performing assets.