How switching over to Basel II would lead to the much needed enhancement of credit growth to better rated SME. Comment?
Any business which is profitable gets the finance from banks. Banks source their money from the people and are accountable to give back appropriate returns to their creditors and shareholders. Credit Ratings and Basel II norms will bring efficiency in bank financing by linking availability and pricing of loans to the inherent credit risk of the SME borrower entity. This will make way for higher financing opportunities for the SMEs which enable them fructify their expansion and Technology Upgradation plans. The best option from the SME point of view will be to make available the equity option to the SMEs by having a special national stock exchange for the upcoming/ companies. Making such alternative financing available will also help SMEs in getting more finance from banks by improving their debt-equity ratio. Currently, high debt-equity ratio is one of the major handicaps for SMEs in seeking adequate finance from banks.
