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What is the full form of SMERA in Banking

What is SMERA in Banking?

SMERA was formed on 1st January 2020 by the Ministry of Finance of the Government of India and the Reserve Bank of India. SMERA ratings provide the micro, small and medium business in getting credibility to be offered loans in order to grow their Businesses.

SMERA comes under acuite research and rating organization which is registered with SEBI (securities and exchange board of India) as a credit rating firm. 

SMERA is the world’s first MSME focused rating agency and is an integral part of the risk assessment process in banks.

What are the advantages of SMERA?

  • Highly rated credit rating agencies assures the investors financial safety and minimal risk of bankruptcy.
  • The investors are given a particular symbol by the credit rating which includes information so that you can recognize very easily the worth of the issuer company.
  • The investors do not have worry about the fundamentals of the company, financial management and standing, since the experts of the credit ratings do that part.
  • Investors need not to take advice of the financial intermediates since the rating symbol defines the credit worthiness and the amount of risk involve in it.

What are the disadvantages of SMERA?

  • The prediction of the company’s health is done on the basis of present and past historic data which is momentary and anything can happen after assigning the rating symbols.
  • The changes in political, economical environment and government policies often directly affects the working credit rating company.
  • If a company is rated low for its performance but even if it increases its performance, still the low rating adversely affects the image of the company.
  • Sometimes two different credit agencies gives different ratings for same instrument of the same issuer company. 

What are credit rating agencies?

Credit rating agencies grade the businesses on the basis of their credit worthiness similar to how credit card companies give credit score to the credit card users.

These ratings allow the money lenders determining if the borrower will be able to timely repay the loan or not. 

This rating is based on previous payments, utilization ratio and consumption habits etc. 

Also read: Full form of CIF in Banking sector

What is the process of credit rating?

The process of credit rating includes a credit rating agency that undertakes details of the stocks, security, bond or even a company to analysis it. After that it rates them for the benefit of everyone to see the ratings and then invest accordingly.

What is India’s first credit rating agency?

India’s first credit agency is CRISIL pioneered in 1987 and promoted by the ICICI Ltd along with UTI and other financial institutes.

How many credit rating agencies are there in India? 

Six credit rating agencies which are authorized by SEBI are present in India which help borrowers show their repaying credibility to lenders. 

The following are the names of these six agencies:

  • ICRA
  • Fitch India
  • Brickwork Rating
  • CARE

Do we need credit rating agencies?

Credit rating organizations are important to conduct unbiased ratings which don't involve a conflict of interest since they are not directly involved in the trading process.

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