The delegation highlighted how the Base Lending Rate (BLR) rating mechanism is inherently defective where an MSME is bench marked with a large industry leader on parameters such as market share and other financial ratios. FISME has recommended that the BLR rating criteria should be completely done away with from the MSME sector or if the same is not feasible, its threshold should be increased from the current Rs. 5 to Rs. 25 crore.
Owing to a large number of complaints about Credit Rating, FISME has suggested setting up of a Credit Rating Ombudsman comprising of eminent experts from banking and rating industry to look at grievances from the industry, including review of credit ratings assigned by the rating agencies.
The delegation also impressed upon RBI to ask banks to review their internal rating mechanism and make amends in their system based on the experience gathered during the last seven years. The attention of the Executive Director was also drawn on the need to look at the requirements of the three segments of the MSME sector distinctly. While the Government has ambitious plans to focus on Micro segments through MUDRA Bank, the needs of Medium sector have not been adequately addressed. Growing from Small enterprise to a Medium size, an enterprise needs additional funds but cannot bring the matching immovable assets to pledge as collateral.
The delegation impressed upon the RBI officials to decisively change the existing MSME financing mechanism which was entirely immovable asset based to the one based on movable assets such as Factoring, receivables financing or bills financing.
While the issue of high stamp duty on assignment of debt has since been addressed in case of Factoring, the lack of clarity on sharing of security between a Factor and Bank on pari passu floating charge on receivables continues. Similarly, there is also a strong case for quick universal coverage under Trade Receivables Discounting Scheme (TReDS). These issues have so far failed to capture the attention of RBI.