MSME Exporters With US Exposure Hit By Credit Rating Downgrade
MSMEs continue to face difficulties when seeking finance from banks and financial institutions, where high collateral requirements persist
Chennai: MSME exports who have been hit by the high US tariffs, are also facing challenges with their bank credit. MSMEs with US exposure are witnessing a downgrade in their credit rating after the 50 per cent tariff came into effect. As a result, MSMEs will end up paying higher interest rates besides providing substantial collateral.
Several companies, especially MSMEs in the sectors which have a high exposure to the US, are currently facing a threat of credit rating downgrade. The external credit rating agencies deployed by banks, while reviewing the health of the companies are enquiring about their exposure to the US. “When you have a considerable exposure, it is perceived as a stressed environment, and the rating is lowered. This automatically leads to increase in the interest rates and affects the availability of finance,” said EEPC chairman Pankaj Chadha.
"MSMEs continue to face difficulties when seeking finance from banks and financial institutions, where high collateral requirements persist. Additionally, the credit rating system used by banks to determine collateral and interest rates disproportionately affects MSMEs. As a result, MSMEs end up paying higher interest rates besides providing substantial collateral," he said.
In the apparel sector also, MSMEs are facing the same situation. “Several companies have reported that they are facing a credit rating downgrade. The sector has a high exposure and those with higher exposure to the US are more worried,” said Chandrima Chatterjee, secretary general of CITI.
“As the gems and jewellery industry is known for their US exposure, we too are facing the issue. But we hope that the government will intervene and find a solution to this issue,” said Vipul Shah, former chairman of GJEPC.
Similar to the Covid times, when the banks had ignored the credit rating for some time, they should not consider US exposure while calculating ratings, at least for this year, said Chadha.
In a meeting with the Reserve Bank of India (RBI) Governor, EEPC highlighted the vulnerability of the engineering sector in the wake of recent US tariffs and sought assistance in reducing borrowing costs for exporters.