'Ratings offset need for due diligence'

POINT BLANK

Ramraj Pai, director, SME ratings, Crisil, spoke to Peter Noronha on the agency's role in rating the country's SMEs.

How would you leverage your first-mover advantage in the SME ratings space?

Touching more and more SMEs is more important than partaking of the same cake. The first-mover advantage is useful to the extent that we benefit from our abilities.

It would help in ensuring a faster turnaround, as far as recruiting people and imbibing the learning are concerned. This is after all a business of skill. But the challenges lie in analysing situations and reaching out to companies located in smaller towns.

Unlike large corporates, which are concentrated in bigger cities, SMEs are dispersed across the country. It is thus incumbent on our part to extend our reach to the hinterland and reach out to both, the SMEs and the local bank branch managers.

Ratings should be intrinsic to every financial decision that an SME would make in the course of running a business. Moreover, convincing the local branch manager about the importance of ratings is significant. Our success would hinge on how people feel about us and the need for ratings.

Would banks' reluctance to fund SMEs create room for PE funds?

No. There is a perception that banks are hesitant about funding SMEs. But, in reality, every bank has SME funding as a thrust area. But bank managers may either be over-burdened or have limited skills at evaluating SMEs. Banks increasingly use rating agencies such as Crisil.

We have tie-ups with most of the public sector banks. The concessions provided by banks, based on the ratings, are incentives for ratings. The ratings also penalise lack of transparency and failure of compliance.

We look at providing exposure as well as educate the enterprises about seeking improved ratings in the future. The SMEs have to scale up to have access to institutional finances. They have to streamline their operations, both in terms of systems and processes. Ratings commoditise the credit-worthiness of a company.

Ratings offset the need for a due diligence as they capture the value of the company and lend it the stamp of credibility. Ratings are thus being welcomed by both banks and SMEs alike.

How do you reach out to SMEs?

We go beyond the big metros. Our focus is on smaller cities and towns, where we conduct awareness programmes for local bankers as talk to the grassroots SMEs.

SMEs need to be convinced about ratings. Since every rupee counts, smaller enterprises tend to be sensitive and more demanding than their larger counterparts. Every business has to reach a critical mass.

Do you envisage PE funding at some point of time?

It does not make any business sense for us to consider funding possibilities. We have an advisory and supporting role vis-à-vis SMEs.

Getting into funding of individual SMEs would lead to an obvious conflict of interests. Looking at the matter from the philosophical angle. Our core competency lies in ratings.

Moreover, our association with the world's leading rating agency, Standard and Poor's, makes such a possibility even more unthinkable.