CIBIL MSME RANK - AN ADDITIONAL DUE DILIGENCE TOOL

CIBIL MSME Rank is a tool to Access the Credit Risk ranking of Micro, Small and Medium Enterprises to make informed lending decisions, CMR is a credit risk for MSMEs that predicts the probability of an MSME becoming NPA in the next 12 months. It helps us to understand the credit behaviour of MSME as well as the probability of default based on the rank. It is applicable to MSMEs with aggregate commercial borrowing between Rs 10 lakhs to Rs 10 Crores.CMR provides a rank to the MSME based on its credit history data on a scale of 1 to 10.CMR 1 being the best possible rank for the least risky MSMEs and CMR 10 being the riskiest rank for MSMEs.The lower the CMR, the lower the Risk of NPA associated with the MSME.

- Navnit Kumar

The Key Parameters used in CMR to measure credit risk are:

1. Liquidity-the liquidity profile of borrower is adjudged by looking at the seasonally adjusted patterns of funds utilization over the past 24 month's period.

2. Firmographics-descriptive attributes like the maturity of the entity, ownership type, industry, location.

3. Repayment Behaviour-month on month analysis of payments made along with the assets classification, are considered to determine if the borrower has a poor or a good track record.

The Model categorises the Entity into broadly three categories:

a) CMR-1 to CMR-3-Never delinquent or No Amount overdue.

b) CMR-4 to CMR-7-Are delinquent but never an NPA

c) CMR-8 to CMR-10-are known to be NPA at some point in time in the past 24 months.

Important points:

1. Borrowers with CMR rating up to CMR-3 should be given preference for faster disposal

2. For CMR 4/5, need-based facilities may be approved.

3. For CMR 6/7, Proper justification for the sanction/enhancement should be given. Credit Risk mitigants like additional collateral, guarantee etc.may be stipulated.