Performance & Credit Scheme for Rating of Small Scale Industries Background

In the context of any developing economy, the Small Scale Sector holds significant importance. The rapidly evolving global economic landscape presents both opportunities and challenges for Small Scale Industries (SSIs) in India. While these industries have the chance to enhance productivity and explore new markets abroad, they are also compelled to upgrade their technological, managerial, and financial capabilities to effectively compete globally. Consequently, there is a pressing need to raise awareness among SSIs about their current operational strengths and weaknesses, providing them with avenues to bolster their organizational capacities.

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Recognizing this necessity, the introduction of a Rating Scheme for SSIs has been proposed. This scheme aims to incentivize the sector to augment its economic contributions by boosting productivity. A favourable rating not only enhances market acceptance but also facilitates quicker and more affordable access to credit, thus reducing credit costs. Moreover, a positive rating instills confidence in buyers when considering sourcing materials from SSIs.

In light of these considerations, a Performance & Credit Rating Scheme for Small Scale Industries has been developed. This scheme has been crafted in consultation with key stakeholders, including Small Industries Associations, the Indian Banks’ Association, and leading Rating Agencies such as CRISIL, ICRA, Dun & Bradstreet (D&B), and ONICRA. Importantly, it has received government approval.

Key Features of the Scheme

Approach to SSI Unit Rating

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  1. The National Small Industries Corporation (NSIC) serves as the central agency responsible for executing the performance and credit rating scheme for Small Scale Industries (SSIs) across its various branches nationwide. 
  2. Unit ratings are determined based on a blend of the unit's performance and creditworthiness. The SSI rating methodology encompasses an array of factors, including credit and performance metrics, which evaluate operational, financial, business, and management risks. 
  3. Rating agencies are enlisted by the NSIC Head Office to administer the scheme, streamlining the rating process. 
  4. NSIC maintains a comprehensive database documenting the ratings awarded by different rating agencies to various units.

Selection of Rating Agency by SSI Units

SSI units have the autonomy to choose any rating agency accredited under the NSIC's rating scheme. Upon selecting a rating agency, the unit specifies its choice in the application for rating.

Rating

The rating process will take place in the following manner:

Step Description
1. Request for Rating from SSI units
2. Collection of Information from the SSI unit(s)
3. Onsite meeting with SSI Management
4. Analysis of Information obtained from the SSI Unit(s)
5. Assign Rating

The validity of a rating shall extend for a period of one year from the date of issuance of the rating letter.

Rating Fee

Rating Agencies maintain distinct fee structures for rating various clients, including Small-Scale Units (SSUs). For SSUs under this scheme, Rating Agencies will establish their fee structures separately.

Due to differences in evaluation criteria and acceptability among users, the rating fee charged by Rating Agencies will vary. Rating Agencies retain the freedom to determine their rating fees, which will be communicated to the National Small Industries Corporation (NSIC) upon empanelment. This ensures that both the applicant unit and NSIC are aware of the fee in advance.

While Rating Agencies may adjust their fees periodically due to market competition and changes in clientele size or numbers, the government has set a ceiling to subsidize the fee. The fee ceiling is prescribed by the government to ensure affordability for SSUs. The table below outlines the fee sharing arrangement.

Small-Scale Units are required to submit their contribution towards the rating fee along with their application. Payments can be made via pay order or demand draft drawn in favor of the selected Rating Agency by the SSI unit.

If the Rating Agency closes the request for rating due to incomplete information, 50% of the fees received from the SSI unit will be refunded. However, if the SSI unit withdraws from the rating process after the Rating Agency has conducted its inspection, no refund will be issued.

Fee Sharing Arrangement

The fee payable to rating agencies is determined based on the turnover of Small-Scale Units, categorized into three slabs. The table below outlines the turnover slabs and the Ministry of Small Scale Industries' share towards the fee charged by the rating agency:

Turnover Fee Reimbursed by Ministry of SSI
Up to Rs. 50 lakhs 75% of the fee charged by the rating agency, capped at Rs. 25,000/-
Above Rs. 50 lakhs to Rs. 200 lakhs 75% of the fee charged by the rating agency, capped at Rs. 30,000/-
Above Rs. 200 lakhs 75% of the fee charged by the rating agency, capped at Rs. 40,000/-

The remaining portion of the fee shall be borne by the Small-Scale Units. The Ministry's subsidy will be disbursed through the National Small Industries Corporation (NSIC) after the submission of the Rating Report to NSIC by the Rating Agencies.

Rating Scales

While the evaluation criteria will be determined individually by each Rating Agency, standardized symbols and their definitions have been established to indicate the risk score in the awarded rating. These symbols, outlined in Annexure-I, provide a uniform representation of both performance evaluation and creditworthiness of Small-Scale Units.

Each rating awarded by the Rating Agencies will be prefixed with the term "NSIC." For instance, a rating granted by ICRA will be termed as "NSIC-ICRA Performance and Credit Rating."

Sharing of Evaluation/Rating of SSI Units

The Rating Agencies will share the ratings awarded to SSI units with NSIC.

Promotion of the Scheme

NSIC, along with the Indian Banks' Association (IBA) and Credit Rating Agencies, will extensively publicize the scheme. Comprehensive details of the scheme will be made available on the Ministry of Small Scale Industries' website, as well as on the websites of NSIC, IBA, member banks, SSI Associations, and Rating Agencies. Additionally, the Rating Agencies will assist in promoting the Rating Scheme.

Application Process

Application forms will be readily available at all NSIC offices and with the empanelled Rating Agencies. These forms will also be accessible on the websites of NSIC, IBA, and the Rating Agencies. Small Industries Associations interested in participating will be encouraged to provide access to the application form on their respective websites.

Any Small Scale Industry (SSI) unit interested in applying for a rating will need to complete the designated application form and submit it to either NSIC or the selected rating agency.

Application Procedure Flow

The SSI unit must submit its application for rating in duplicate. It can be submitted to any NSIC office/branch or directly to the chosen Rating Agency. Upon receipt of the application, NSIC will forward the second copy along with the unit's information and documents to the Rating Agency, accompanied by any comments, if necessary. Alternatively, if the application is submitted directly to the Rating Agency, one copy will be sent to NSIC for their reference and comments.

Information Required for Rating

SSI units seeking a rating must submit the required documents as listed in Annexure-I (B) along with the application.

Timeframe for Completion

Upon receiving the documents, the Rating Agencies will review them. In the event of any deficiencies, the unit will be notified for rectification within a 15-day period.

If the required details are not received within the specified timeframe, the agency will send a reminder, allowing an additional 15 days for submission. If the unit fails to respond within 15 days of the second communication, the case will be considered closed. Upon receiving all necessary information from the applicant unit, the rating agency will finalize the evaluation and award the rating within one month.

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