Assessing Credit Risk in SME: Need To Focus On Credit Rating
India is one of the fastest growing economies in the world and is set to remain on that path, backed by the growth in infrastructure, industry, services and agriculture. To support this growth, credit flow to various sectors of the economy has been increasing but during international financial crisis (2008-2010) hit severely the banking sector in the West, as well as the East and the Gulf countries, mainly due to the relaxed credit policies they were using, in addition to the mismanagement of credit facilities they offered. Credit growth in Indian Banking Sector was also affected. A slackening in the economic growth rate has resulted in both, a lower credit demand as well as a receding appetite on the part of the banking industry, to extend credit.
.This paper tries to study the current Internal Credit Rating Framework of Indian Banks and the Credit Rating Models that banks operating in India are using in evaluating SME customers for credit using the 5C's, LAPP, 5P's, CAMPARI and FAPE methods. This paper also highlights the factors which banks are considering while review the SME clients.
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