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SME Rating Agency of India Ltd (SMERA) provides credit ratings for small and medium enterprises (SMEs) in order to help lending institutions minimize lending risks. SMERA was launched in 2005 as a joint initiative between SIDBI, Dun & Bradstreet, and several leading banks. It offers qualitative rating services at competitive prices with a focused approach on SMEs. SMERA ratings are independent, comprehensive, and transparent assessments that help lenders better understand SMEs and make credit decisions. The rating process involves collecting documentation, site visits, interviews, and considering both financial and non-financial parameters to provide ratings within SMERA's own scales.
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- 1. SME Rating Agency of India Ltd
- 2. SME Expectations for growth Minimise lending risk thru ratings 2
- 3. Challenges faced by lenders Limited skills in Numerous SMEs Geographically Dispersed understanding & evaluating Lending Institutions Lack of Reliable Information Multiple segment – Multiple Needs Minimise lending risk thru ratings 3
- 4. Relevance for a rating Agency dedicated for SMEs • Focused approach towards SMEs • Strong data & knowledge-base about SMEs • Different evaluation approach based on size and industry • Ability to analyze in limited and lesser reliable information • Emphasis on non-financial parameters TO BRIDGE THE GAP BETWEEN FINANCIERS AND SMEs Minimise lending risk thru ratings 4
- 5. SMERA – An Introduction • Only rating agency dedicated to the SME qualitative services at competitive prices. segment offering • Joint initiative of SIDBI, Dun & Bradstreet and 11 leading banks operating in SME segment. • Launched on the 5th September 2005 by the Hon. Finance Minister, Shri P Chidambaram. • Completed around 4800 ratings till date. • Greater acceptability in banks (MOU with 22 leading banks). 14 Banks offer interest rate and security concessions for well rated SMERA customers. Minimise lending risk thru ratings 5
- 6. Highlights of SMERA Ratings Provides ratings that are : Independent Neutral Risk Assessment Comprehensive Conducts an exhaustive due diligence process Transparent Rating Rationale discussed with rated entities Enables better understanding of SMEs by lenders while taking credit decisions. Minimise lending risk thru ratings 6
- 7. Rating Scales • NSIC • SMERA
- 8. NSIC Rating Scale RATING INDICATOR Financial Strength High Moderate Low Highest SE1B SE1C High Performance Capability SE1A SE2A SE2B SE2C Moderate SE3A SE3B SE3C Weak SE4A SE4B SE4C Poor SE5A SE5B SE5C
- 9. SMERA Rating Scale The purpose of using two part rating is to ensure peer-toThe purpose of using aatwo part rating is to ensure peer-topeer comparison and to rate company within its own size peer comparison and to rate aacompany within its own size category. category. Composite Appraisal Indicator reflects a company’s health, stability and overall condition Size Indicator reflects the tangible net worth of a company.
- 10. Rating Process Flow Rating Request SMERA Site visit Request for Interview and site visit Enterprise Conducts site visit and interviews Management Questionnaire Industry Assessment and Cluster data ROC Information Rating Model Third Party Data – e.g. Litigation Information External Data SMERA Database Documents, Site Visit audited results Assessment & certified Report projections Documents Obtained Rating Analyst Entity Rating Peer Review Minimise lending risk thru ratings Final Rating 10
- 11. Factors considered while rating Parameters of Rating Financial Solvency Ratios Liquidity Ratios Non-Financial Profitability Activity Ratios Ratio e.g. Debt-Equity Current Ratio RONW Assetturnover Management Quality Location Advantage Marketing Network Legal Issues Industry and MacroEconomic Assessment Minimise lending risk thru ratings 11
- 12. Non-Financial Parameters Employee Count & quality Years in Existence Legal Status Main Premise Ownership Management Qualification Management Experience Statutory Compliance Raw Material Buyer/Supplier Base Energy Plan Capacity Utilization % Sales - DOM & Exports Nature of Industry Product Line Sales/Purchases from Sister Concerns Marketing Network Research & Dev elopment Insurance Cov erage Litigation Accounts audited/certified Awards & Qualitativ e Certification Locational adv antage Site Visit Observ ation Banking Facilities Achiev ability of Financials Analyst Ev aluation Minimise lending risk thru ratings 12
- 13. Benefits of SMERA Rating • Third party credit rating helps in extending additional comfort for internal decision making. • Validation of the internal ratings. • Intrinsic Strengths of SME units captured as model also considers qualitative parameters in addition to financial results. • Strengthening of Credit Portfolio thru rating/review ratings – early warning signals. • Impact of industry related cyclical trend considered in rating. • Cluster centric approach. Minimise lending risk thru ratings 14
- 14. NSIC - D&B - SMERA Rating Fee Category Fees Service Tax Total Turnover Rs. Rs. Rs. < 50 Lacs 7,500 50 to 200 Lacs 9,000 > 200 Lacs 12,000 772.5 8,272 927 1,236 9927 13,236 Above fees is inclusive of service tax @ 10.3% Minimise lending risk thru ratings 15
- 15. SMERA Rating Fee Category Fees Service Tax Total Turnover Rs. Rs. Rs. < 50 Lacs 30,000 3,090 50 to 200 Lacs 36,000 3708 39,708 > 200 Lacs 48,000 4,944 52,944 Minimise lending risk thru ratings 33,090 16
- 16. Thank You Contact Details Virendra Goyal-National Sales Manager Cell-99300-74009.Email-virendra.goyal@smera.in
Editor's Notes
- Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Central Bank Of India Dena Bank Indian Bank Oriental Bank of Commerce Syndicate Bank UCO Bank Union Bank Of India