{"id":40025,"date":"2023-03-31T10:56:47","date_gmt":"2023-03-31T10:56:47","guid":{"rendered":"https:\/\/www.smeraonline.com\/newweb\/?page_id=40025"},"modified":"2023-04-25T09:19:02","modified_gmt":"2023-04-25T09:19:02","slug":"smera-nbfc-grading","status":"publish","type":"page","link":"https:\/\/www.smeraonline.com\/newweb\/index.php\/smera-nbfc-grading\/","title":{"rendered":"SMERA NBFC Grading"},"content":{"rendered":"\t\t
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Non Banking Financial Companies (NBFC) Grading<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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An independent and unbiased opinion of an enterprise’s creditworthiness<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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NBFC Grading\u200b<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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NBFC Overview<\/h2>\t\t\t\t
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NBFC grading is an extensive assessment of the business and financial performance of an NBFC and provide the relative capability of the NBFC to manage its operations in a sustainable manner.<\/p>\n\t\t\t\t<\/div>\n\t\t\t<\/div><\/div>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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\n\t\t\t\t\t\"nbfc-financial\"<\/span>\n \t\t\t

NBFCs form an integral part of the Indian financial system<\/p><\/span>\n \t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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Reaching out credit to the unbanked segments of society, especially to the micro, small and medium enterprises
(MSMEs) and entrepreneurs.<\/p><\/span>\n \t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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Ground-level understanding of their customers\u2019 profile and their credit needs gives them an edge over banks<\/p><\/span>\n \t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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Gaining market share in urban and semi-urban areas on account of customer oriented product innovation and superior customer service<\/p><\/span>\n \t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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Lesser turn-around time (TAT) compared to banks enables NBFCs to establish a strong market presence.<\/p><\/span>\n \t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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Broadly classified into 11 different categories of NBFCs such as asset finance companies, gold loan companies, and so on.<\/p><\/span>\n \t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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About the product<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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NBFCs complement the mainstream banking system. Borrowers reach out to NBFCs on account of their quicker decision making, minimal documentation, swift services and flexibility.<\/p>

However, given the nature of their business, they cater to the market which is inherently considered a higher risk by the bank. Hence for lenders\/investors to take informed decisions, there is a need for such NBFCs, particularly the smaller NBFCs, to be assessed by an external grading agency on a different criteria and scale for NBFCs so as to differentiate the NBFCs better vis-\u00e0-vis the conventional debt rating scale where the ratings may be distributed within a narrow range.<\/p>

SMERA NBFC Grading is an indicator of SMERA’s opinion on the relative capability of the NBFC to manage its microfinance activities in a sustainable manner. With a focus on evaluating the NBFC\u2019s business and financial risks.<\/p>

SMERA analyzes an NBFCs operating environment, governance structure, management and systems, scalability (in relation to business plans), asset quality, financial profile and credit and risk management policies.\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Majority of the registered NBFCs are small and non deposit taking<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t
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NBFCs, relatively the smaller, face issue of required credit rating (minimum investment grade)<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t
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Majority of the smaller NBFCs are too small to get a rating and hence do not have any rating.<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t
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Such smaller NBFCs also have low eligibility limit for raising funds from banks and thus have to depend on getting funding from large NBFCs for bridging the gap of bank funding<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t
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Smaller NBFCs may not have effective & diversified product offering or monitoring framework or appropriate risk management policies<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Therefore, for lenders\/investors to take informed decisions, there is a need for such NBFCs to be compared on a similar platform by an external impartial grading agency and hence the need for grading of NFCs. The NBFC grading has a specific scale for NBFCs so as to differentiate the NBFCs better vis-\u00e0-vis the conventional debt rating scale where the ratings may be distributed within a narrow range.<\/p>

SMERA NBFC Grading is an indicator of SMERA’s opinion on the relative capability of the NBFC to manage its microfinance activities in a sustainable manner. With a focus on evaluating the NBFC\u2019s business and financial risks.<\/p>

SMERA analyzes an NBFCs operating environment, governance structure, management and systems, scalability (in relation to business plans), asset quality, financial profile and credit and risk management policies.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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About the product<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Non Banking Financial Companies (NBFCs) play an important role in financial inclusion.<\/p>

NBFCs complement the mainstream banking system. Given the nature of their business, the cater to the market which is inherently considered a higher risk by the bank. Borrowers reach out to NBFCs on account of their quicker decision making, minimal documentation, swift services and flexibility. NBFC thus price them accordingly to cover the risks.<\/p>

The success of NBFCs can be attributed to product lines, lower cost, wider and effective reach, strong risk management capabilities to check and control bad debts, and a better understanding of customer segments. Additionally, improving macro-economic conditions, higher credit penetrations, rapid changing consumption themes and disruptive digital trends have influenced NBFC credit growth. Stress in public sector units (PSUs), underlying credit demand, digital disruption for MSMEs and SMEs as well as increased consumption and distribution access and sectors where traditional banks do not lend are major reasons for the switch from traditional banks to NBFCs. But NBFCs also have their problems, specifically the small ones, such as:<\/p>

  • Majority of the registered NBFCs are small and non deposit taking<\/li>
  • NBFCs, relatively the smaller, face issue of required credit rating (minimum investment grade)<\/li>
  • Majority of the smaller NBFCs are too small to get a rating and hence do not have any rating.<\/li>
  • Such smaller NBFCs also have low eligibility limit for raising funds from banks and thus have to depend on getting funding from large NBFCs for bridging the gap of bank funding<\/li>
  • Smaller NBFCs may not have effective & diversified product offering or monitoring framework or appropriate risk management policies<\/li><\/ul>

    Therefore, for lenders\/investors to take informed decisions, there is a need for such NBFCs to be compared on a similar platform by an external impartial grading agency and hence the need for grading of NFCs. The NBFC grading has a specific scale for NBFCs so as to differentiate the NBFCs better vis-\u00e0-vis the conventional debt rating scale where the ratings may be distributed within a narrow range.<\/p>

    SMERA NBFC Grading is an indicator of SMERA’s opinion on the relative capability of the NBFC to manage its microfinance activities in a sustainable manner. With a focus on evaluating the NBFC\u2019s business and financial risks.<\/p>

    SMERA analyzes an NBFCs operating environment, governance structure, management and systems, scalability (in relation to business plans), asset quality, financial profile and credit and risk management policies.\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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    Differentiators between Rating & NBFC Grading<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    <\/i><\/span><\/i><\/span>Differentiators between Rating & NBFC Grading<\/span><\/i><\/div>