SMERA Ratings


A Full Service Rating Agency


SMERA Ratings Limited

A full service rating agency promoted by SIDBI, D&B and 10 large banks

 

The mindsets of SMEs are changing as they are keen to be credit worthy through better credit rating. They are becoming more professional but are too keen to have better ease in doing business. Introducing fiscal incentives for meeting compliance requirements and friendly tax regime will further ease the atmosphere of doing business. That will instill new confidence in them, make them more optimistic about their strength and go for credit rating to convince institutional lenders for a better deal.

SMERA Ratings Ltd, widely known as SMERA has already rated more than 43,000 cases over the last one decade. More than a quarter of these have been added in the last two-year period, showing that its growth has been more significant in the last couple of years. The number is growing faster as more and more commercial lenders, especially public sector banks, encourage SMEs to seek rating of SMERA, which is today one of the most reliable full service rating agencies in the country.

It is promoted by India’s nodal MSME institution, Small Industries Development Bank of India (SIDBI) along with Dun and Bradstreet (D&D). Besides these two institutions, eight large Indian public sector banks and one foreign and Indian private bank hold stake in SMERA’s ownership.

 

SMERA has a network of nine offices and representatives in more than 50 location having access to 300 SME clusters across India. Besides this, it has memorandum of understanding (MoU) with 40 Institutions including co-operative banks, financial institutions and leading trade associations like Confederation of Indian Industry (CII), Dalit Indian Chamber of Commerce and Industry, Southern India Engineering Manufacturers' Association etc for offering its services.

It is world’s first SME-focused rating agency, setting a standard in the sector that is dominated largely by small business firms with no proper management and accounting system. After having thoroughly understood the nuances of the vast SME market, building strong rating methodologies, enviable talent pool and overall expertise, SMERA extended its rating focus beyond the SME segment into financial products in the recent years. Now it rates bonds, non-convertible debentures and fixed deposits, for which it obtained registration from Securities and Exchange Board of India (SEBI).

Since 2012 it also has been providing bank loan rating service under Basel II Capital Adequacy guidelines of Reserve Bank of India to bank borrowers. It has already completed about 3000 such rating assignments. In fact, SMERA is now accredited by Reserve Bank of India (RBI) as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms. It is empanelled with National Small Industries Corporation (NSIC) to provide SMERA-D&B-NSIC Micro and Small Enterprises Rating for SMEs. SMERA is empanelled by Ministry of New and Renewable Energy (MNRE) for Solar Grading, Indian Renewable Energy Development Agency (IREDA) for Credit Rating Model for Renewable Energy Financing and Directorate General of Shipping (DGS) for Maritime Grading.

Within the organization, there is a fully dedicated vertical for bond ratings, which provides credit rating services to issuers of the financial products. It is the same vertical that provides bank loan rating services too. Its in-house team builds rating models, methodology and criteria exactly like what it does for SME rating. This vertical is capable of offering full range of credit rating services, which include certificates of deposit, perpetual bonds, commercial papers, banks’ hybrid capital instruments, asset-backed securities, mortgage-backed securities, municipal bonds and partial guarantees.

 

Indian SMEs are becoming better professionalized, as the change in economic climate demands them to be. Accountability has become an important consideration for commercial institutions’ supports, including even for equities. This makes SMEs go for credit rating, which leads to the proliferation of credit rating culture. Naturally in this market, SMERA, with its high level of integrity, domain knowledge and strong talents, finds a stronger place.

 

The SME sector in India is growing fast. The momentum will continue. Still, there is a huge scope for faster growth. If small enterprises are given professional guidance and support, besides an easy to work atmosphere, sky is the limit. At the same time, in every transitional phase of the economy, SMEs take a hit before they rebound later. The recent two-month phase of demonetization made their growth considerably sluggish, carrying the pressure with a hope that a better phase of easing to do business would emerge to offset the shocks.

Many SMEs have huge capability to grow into economy of size and become future corporate leaders, but are reluctant of being aggressive for fear of inspector raj, too many compliance requirements and tax worries for the time being. Simplification of these would ensure an ease of doing business for them – simply an encouragement for them to grow faster. That would also make them being more transparent, fearless and ultimately help them reflect their real potential as a business enterprise.

The era of e-governance and India’s gradual shift towards cashless economy may make all business operations more transparent, though SMEs still have huge challenges in managing the sudden changes, points out Mr Sankar Chakraborti, Chief Executive Officer of SMERA Ratings Ltd. On the other side, the existence of too many compliance requirements would only bring them back to square one. Many SMEs may have no option but to side-step them only to be get caught later to be demoralized by themselves. Many SMEs under such circumstance would naturally be reluctant of being rated and seek institutional credits at deserving cost under the prevailing atmosphere. These issues are very important and deserve serious attention of the government, especially in view of the fact that SMEs have been harder hit by the demonitisation. If we are heading towards an era of ease of doing business then there is a need of dismantling many compliance requirements and trimming the role of inspectors. That will help SMEs show their real strength and go for credit rating voluntarily, as a third party certification to endorse their strength, agrees Mr Chakraborti. He expects a discreet policy intervention by the government to ensure an atmosphere of what is called ease-of-doing-business for SMEs.

 

SMERA believes, the current government has the necessary will to make these fundamental changes in the way SME sector is governed. Hence the situation is expected to change for better in future as SMEs are considered backbone of the Indian economy, he says. Moreover, there are more professionals coming forward to set up their business who understand the merit of procuring rating from a credible rating agency, he opines. In many cases, the entry of better educated second generation has led to revamping of the old business model and overhauling their operational culture. They also understand the importance of credit rating for institutional recognition.

 

On the other side, as the nature of SME business segment is vastly heterogeneous, it is not very easy for a commercial lender to assess the risk and prospects of the business. It is also not practically easy for lenders to hire talents to look into too many new segments of business. Though commercial banks are recruiting new talents for smooth operations under sophisticated technology atmosphere, these talents may not be sufficient to delve deep into the nuances of many modern businesses, Mr Sankar avers. Many internal due diligence process of the lenders were proved to be a flawed system as most of the defaulters were unrated, incompetently rated or erroneously rated borrowers. This gap can be filled with the service of a credible rating agency like SMERA that understands the risk in SME business better, being a specialised institution in small and medium enterprises.

 SIDBI’s initiative in setting up the rating agency, SMERA was appreciated by overseas bodies.  It has a tie-up with CAFRAL, RBI's think-tank, to develop SME's Sentiment Index. “We are moving closer to launching this,” says Mr Sankar. It also has an MOU with IIT-Madras for data sharing and joint authorship of a Policy White Paper as an outcome of a research project pertaining to SMEs. It provides technical know-how to The Bangladesh Rating Agency, which is progressing well. SMERA has an arrangement with SIES College of Management Studies for conducting a Certified Credit Analyst Training Program for students. The first batch has commenced the programme.