Smaller NBFCs may have same credit rating model as SMEs

The government will explore ways to facilitate easier credit rating of smaller finance companies before enlisting them for its financial inclusion drive. It looks to tighten the regulatory and oversight regime.

The Finance Ministry will discuss the idea with the banking regulator, the Reserve Bank of India. It’s being discussed if a rating model similar to small and medium enterprises and micro finance institutions can be applied to small non – banking financial firms as well.

The non banking financial firm cannot accept public deposits of more than Rs10 crore     

Under the existing structure of an un-rated or under rated (less that A)

The industry report says that more than 90 per cent of the deposit – taking NBFCs are of small and medium size. They are without rating or have inadequate rating.

The co – chairman of   FIDC Raman Agarwal said that this had made fund raising both through public deposits and bank or institutional borrowings increasingly difficult.

FIDC is a representative body of asset financing NBFCs. Rating agencies such as CRISIL, ICRA  and FITCH use the same rating model  for grading both small and large NBFCs that leads to many NBFCs opting out from the rating process.

They are told by the rating agencies to withdraw from the process as they will not be able to assess them due to small size or would lead to negative rating. This was said by the CEO of a mid-sized asset financing company.

A handful of small and medium NBFCs enjoy the minimum investment grade credit rating. The rating agencies such as SMERA and M-CRIL rate SMEs and MFIs but these agencies are not approved by the RBI.

The official said that SIDBI accepts rating of these companies. He said it can be looked if  a similar approach is viable for NBFCs  too.

Alok Misra director ratings and research at M-CRIL said that the rating process should not be restricted to financial parameters for such companies. He said that there has to be a holistic appraisal involving governance parameters and assessing operation and management of the company.

NBFCs account for 9.1 per cent of the assets of the total financial system. Deposits of asset financing companies increased by 17.5 per cent (2008-09)