The US-based Citigroup is going to acquire a 4 per cent stake in SME Rating Agency of India. It is the second foreign banking major to have agreed to buying a stake in the rating agency.
Earlier, Standard Chartered had decided to buy a 5 per cent stake in Smera set up by Small Industries Development Bank of India, Dun & Bradstreet, Credit Information Bureau (India) Ltd and some banks.
Citigroup has decided to become an equity partner in Smera, as it intends to benefit from the comfort of ratings that are comprehensive, transparent and reliable, Smera CEO Rajesh Dubey said. Foreign banks see a huge business opportunity in lending to SME units.
Against a cut-throat competition in lending to large corporates at wafer-thin margins, advances to SMEs allow banks to earn higher margins, besides fees.
The interest rates charged on loans to SMEs range from 10-12 per cent, while big corporates with higher ratings negotiate interest rates below the prime lending rates.
Initially, Smera's paid-up equity capital will be Rs 10 crore (Rs 100 million). Foreign banks might be allowed a greater say in the management of the rating agency at a later stage and could be allocated a board position on a rotational basis. The equity stake of Sidbi and D&B in Smera will be 22 per cent and about 13 per cent respectively.
And, while State Bank of India and ICICI Bank would be allotted 10-13 per cent stakes each, CIBIL will own a 4 per cent stake in the rating agency.
Smera has already rated 40 SMEs, and another 180 are in the process of being rated. In total, it plans to rate about 5,000 small and medium companies across various sectors in the next 12 months.