Credit Rating Framework for Financing of SMEs in India and role of central bank

Pankaj Kumar Gupta () and Sandeepa Kaur ()
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Pankaj Kumar Gupta: Centre for Management Studies, JMI University
Sandeepa Kaur: Centre for Manangement Studies, JMI University, New Delhi

No 3005373, Proceedings of Business and Management Conferences from International Institute of Social and Economic Sciences

Abstract: Small and Medium Enterprises (SMEs) are playing more and more important role in world economic development. Indian SMEs have been on the forefront of the development path. However, Indian SMEs face a host of obstacles when they try to access credit market for their financing needs. Banks do not feel confident to extend loans to the business units whose track records are not apparently known to them, nor are they easily verifiable by the banks. On one side the government assigns a target of minimum threshold level of SME financing for banks and on the other side banks are reluctant to finance because of perception of higher probabilities of credit default. A specialized and effective enterprise credit rating mechanism is extremely important for these enterprises. In this paper we examine the major issues in the financing of SMEs in an Indian context and evaluate the flip side of the current rating mechanism. We also suggest a framework of financing these enterprises for respective sources of capital with comments on the role of the central bank in this regard.

Keywords: SMEs; Enterprise Credit Rating; Credit Policy; Rating agencies; Credit Default (search for similar items in EconPapers)
JEL-codes: E58 H81 O23 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2015-10
New Economics Papers: this item is included in nep-ent, nep-mac and nep-sbm
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Published in Proceedings of the Proceedings of the 2nd Business & Management Conference, Madrid, Oct 2015, pages 80-99

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