CRISIL SME Ratings: Facilitating Growth and Access to Finance for MSMEs

Transcription

1 Presentation to ICAI Western India Regional Council, Mumbai CRISIL SME Ratings: Facilitating Growth and Access to Finance for MSMEs Yogesh Dixit Director-SME Ratings, CRISIL Somasekhar Vemuri Director-Criteria & Product Development, CRISIL September 1, 2012 Mumbai 1

2 Key Messages MSMEs are engines for India s growth MSMEs account for 95% of enterprises in India 90% of employment-create one million jobs annually around 9% of India s GDP-45% of manufacturing output and 40% of exports CRISIL has assigned 32,000 ratings to MSMEs; this has provided increased access to funds at competitive rates to enterprises Credit facilities of CRISIL-rated SMEs grew at 30% compared to sector average of 20% Aggregate interest savings of Rs 175 crore for CRISIL-rated entities SMEs opting for renewal of ratings have outperformed the sector Concept of rating gaining ground fast in western India contributing more than 42% to all India ratings assigned Maharashtra 26.9% Gujarat 10.8% MP 2.5% 2

3 CRISIL s Coverage of the SME Sector Industry sectors: Covers more than 150 sectors Geography: Spread across 26 states 11.0% 6.0% 3.9% 2.8% 2.5% 2.0% 6.3% 3.4% 3.4% 4.6% 4.3% 45.2% 4.1% 4.4% 26.9% 1.2% 1.2% 1.2% 1.4% 1.7% 1.6% 2.1% 2.1% 2.1% 1.9% 1.8% 3.0% 2.7% 2.6% 2.4% Diversified - Manufacturing Engineering Steel And Steel Products Agriculture Products Others - Services Electrical Equipment Plastic And Plastic Products Construction - Civil Textiles - Cotton Pharmaceuticals Food And Food Processing Textile Products Food And Food Products Auto Ancillaries Packaging Automobiles - 4 Wheelers Metal and Metal Products Chemicals - Speciality Textiles - Other Others 4.7% 7.6% 8.1% 8.6% 10.8% Maharashtra Gujarat Tamil Nadu Punjab Andhra Pradesh Karnataka Uttar Pradesh West Bengal New Delhi Haryana Rajasthan Orissa Madhya Pradesh Chattisgarh Others 3

4 Benefits of Ratings to MSMEs 4

5 SME Ratings and credit flow The Relationship

6 CRISIL SME Ratings: Bringing Specific Benefits Enhanced access to funds Credit facilities of CRISIL-rated SMEs grew at 30% compared to sector average of 20% A strong feedback and self improvement tool SMEs continuing with the annual rating exercise after first rating have outperformed the sector These firms delivered sales and profit growth of 31% and 25% as against sector average of 25% and 18% respectively 55% of rated SMEs see significant value in the rating Better borrowing rates and enhanced access to finance Aggregate interest savings of Rs.175 crore for rated entities Value proposition validated by repeat business without subsidy Rating renewal rates are 35% 6

7 Increased credibility with satke-holders and counter parties Ratings position companies as 'trusted' and 'credible business entities Enhance confidence of potential customers /suppliers/bankers Differentiate MSMEs from peers Being used on Websites, Letterheads, Visiting Cards and Brochures External recognition improves credibility and helps in marketing 7

8 Rating Certificate Rating Certificate as shown here is issued to MSMEs It helps in building credibility instantly with customers and other stake holders Certificates are generally displayed on walls by enterprises Comprehensive Rating Report is also shared with customers 8

9 Detailed report Designed to facilitate appraisal by banks CONTENTS NSIC-CRISIL PERFORMANCE AND CREDIT RATING GRID FACT SHEET STRENGTH AND RISK FACTORS MANAGEMENT PROFILE FUTURE PLANS OWNERSHIP PATTERN MANUFACTURING FACILITIES BUSINESS PROFILE PRODUCT PROFILE CAPACITY UTILISATION SUPPLIER INFORMATION CUSTOMER INFORMATION ORDERS IN HAND MARKETING ARRANGEMENTS OTHER INFORMATION BANK AND INSURANCE DETAILS FINANCIAL PERFORMANCE PROFIT AND LOSS ACCOUNT GRAPHS BALANCE SHEET KEY RATIOS SITE VISIT INFORMATION PROMOTERS DETAILS

10 MoU Banks Sr. No. Partner Banks with MoU Interest Rate Concession 1 Allahabad Bank 2 Andhra Bank 3 Bank of Baroda 4 Bank of India 0.25% % 5 Bank of Maharashtra 0.50% 6 Canara Bank 0.25% % 7 Central Bank of India 0.25% 8 Corporation Bank 0.25% % 9 Dena Bank 10 Dhanlaxmi Bank 0.50% 11 Dombivali Nagari Sahakari Bank Ltd. 12 Federal Bank Limited, The 13 HDFC Bank Ltd. 14 ICICI Bank Ltd. 15 Indian Bank 16 Indian Overseas Bank 17 Jammu & Kashmir Bank Ltd. 18 Janseva Sahakari Bank Ltd. 19 Karnataka Bank Limited 0.50% 20 Karnataka State Financial Corp. Sr. No. Partner Banks with MoU Interest Rate Concession 21 Kerala Financial Corporation Ltd. 1% 22 The Nainital Bank Ltd. 0.50% 23 NSIC Limited 0.5% - 1% 24 Oriental Bank of Commerce 25 Punjab National Bank 0.25% % 26 Religare Finvest Ltd. 0.3% - 1% 27 Saraswat Cooperative Bank Ltd. 28 Standard Chartered Bank 29 State Bank of Bikaner and Jaipur 30 State Bank of Hyderabad 31 State Bank of India Discretionary 32 State Bank of Mysore 33 State Bank of Patiala 34 State Bank of Travancore 35 Syndicate Bank 0.25% % 36 Tamilnad Mercantile Bank Ltd 0.50% 37 UCO Bank 0.25% - 1% 38 Union Bank of India 0.25% % 39 United Bank of India 0.25% % 40 Vijaya Bank 0.50% 41 YES Bank 0.25%-1%

11 Wide Availability and Door-Step Service More than 32,000 ratings assigned CRISIL s pan-india reach Presence in over 180 cities through retainer/associate network Ratings assigned to SMEs in more than 480 cities and towns New Delhi Jaipur Chandigarh Lucknow All-India reach for verification and basic information collection 70% of rated SMEs are located in non-metro areas Ahmedabad Surat Mumbai Pune Indore Ranchi Raipur Hyderabad Kolkata More than 1,500 seminars and workshops organized in collaboration with banks and industry associations Bengaluru Madurai Chennai Branch Offices Business Centres Retainers 11

12 CRISIL SME Ratings: Key Features 12

13 Definitions: Rating Scale & Default CRISIL SME Ratings indicate level of creditworthiness adjudged in relation to other MSMEs NSIC-CRISIL Rating Scale for MSMEs These are issuer level ratings and not issue-specific ratings Default, for CRISIL s MSME ratings, occurs when a borrower becomes a non-performing asset (NPA) This is a 90+ days past due (dpd) default

14 Credit risk: framework Separate rating methodology Lack of organized data and information on industries Difficulty in assessment of competitive dynamics Managements are not well-known hence assessment of track record is critical Reported financials are less reliable Separate scale is required Scale calibration is critical Business Risk Although the credit risk framework is the same as used for large corporates, the tools and methods used to assess SMEs are different Management Risk Financial Risk Project Risk Overall credit risk

15 CRISIL s SME Ratings : process and validity 15

16 Collect & process information Step 1: Collect and process preliminary information Site visit conducted by CRISIL Representative Request for rating received Document/Information sent for analysts Preliminary information collected

17 Analyse and assign the rating Step 2: Analyse and assign the rating Documents and additional received after site visit Rating is assigned Information checked by CRISIL analysts Rating Note prepared Background research is done Management discussion over a conference call

18 Communicate & publish rating Step 3: Communication and publication of the rating Draft Rating Report prepared and forwarded to customers to eliminate factual inaccuracies Rating is published on the website / CRISIL SME Connect with the prior approval of customers Changes, if any, received from the client and made Final report, rating letter and a rating certificate sent to the client

19 Rating validity CRISIL s ratings for MSMEs are valid for a period of one year from the date that the rating has been assigned, subject to no significant changes/events occur during this period that could materially affect the business and financial parameters of the organization All valid CRISIL ratings for SMEs can be accessed on

20 CRISIL s Insights on MSME Sector 20

21 Insightful articles on the MSME Sector by CRISIL 1% cost decline could boost SMEs profitability by 12.5% Every percentage interest hike reduces SME profits 14%: CRISIL MP presents strong growth opportunities for MSME Sector: CRISIL Ratings enhance access to funding for SMEs: CRISIL Announces 20,000th SME Rating SME exporters enjoy higher operating margins than domestic peers MSMEs combat inflationary pressures with own funds Most MSMEs rated in eastern India from West Bengal MSMEs in smaller cities in Maharashtra emerging rapidly Timely payments by large corporates can boost SME profits by 15 percent Incremental SME funding: A Rs.500 billion business opportunity for India's banks 21

22 Insightful articles on the MSME Sector by CRISIL Punjab leads in the number of rated entities in northern India Karnataka among India's top 3 states in employment generation SMEconomics May theme Impact of Inflation SMEconomics Sep theme Exports Ratings gain foothold in Agra s footwear-dominated MSME sector Rajkot has stronghold over castings sector in Gujarat MSMEs in Hyderabad Benefiting From Right Medicine Nagpur: A Significant Contributor to the Engineering Industry in India Inherent advantages make the NCR an attractive business location Pune in Top Gear in terms of MSME Ratings in Western India 22

23 MSME Funding Is it sufficient for future growth? Geographical distribution of Incremental Funding Opportunity (IFO) IFO A state-wise analysis reveals that SMEs in states such as Gujarat, Delhi, and West Bengal have the highest IFOs. These states have the highest potential for incremental SME funding IFO Maharashtra 16% New Delhi 19% Tamil Nadu 4% Haryana 14% Gujarat 25% West Bengal 19% Punjab 9% Rajasthan 7% Andhra Pradesh 10% Urban 17% Uttar Pradesh 18% Semi-urban & Rural 13% Karnataka 17% All-India Average 15% 23

24 Access to Credit among Indian MSMEs An Overview Higher rated customers can access funds at lower rates with lower collateral requirements Expediting credit delivery by reducing efforts and time on credit appraisal Greater credit penetration leading to more growth for SMEs CRISIL Rated SMEs have witnessed a high growth rate in bank funding Rs. crore Outstanding Bank credit to MSME Sector 400, , , , , , ,000 50,000 0 March 2009 March 2010 Outstanding Bank credit to CRISIL rated MSMEs Rs. crore 25,000 20,000 15,000 10,000 5,000 0 March 2009 March 2010 Interest savings aggregate over Rs.175 crore for rated entities 24

25 Some other interesting findings Timely payments by large corporates can boost SME profits by 15% Timely payment by large corporates to SMEs could improve liquidity materially and enhance profits by 15% SMEs with large corporate customers carry receivables at 80 days of sales 35 per cent have receivables in excess of 90 days Receivable levels of SMEs with Corporate Customers % of SMEs Chart 3 : Receivable levels of SMEs with Corporate Customers 30% 25% 20% 15% 10% 5% 0% & above Receivable (No. of days) Strains balance sheets significantly and vitiates financial ratios Smaller enterprises with lower turnover have weaker receivables position making them more vulnerable Sectors such as power, engineering and agro/specialty chemical sectors have the highest receivables position 25

26 Some other interesting findings

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