The government may ask the Small Industries Development Bank [Get Quote] of India [Get Quote] to establish a credit rating agency for the sector.

Sidbi chairman N Balasubramanium made a presentation to Finance Minister P Chidambaram on Friday on improving credit flow to SMEs. He also gave a progress report on plans for rating SMEs.

Chidambaram has asked Sidbi to come back with a "new model" for expanding the credit reach for SMEs. Based on this, the government will decide what it needs to do.

"Of all the enterprises in the country, 25 per cent are self-financed. They have no access to credit," Chidambaram had said recently at a seminar here.

"A new company is likely to be set up by May this year to take up the task of rating. The company will issue credit ratings and also rate the promoters," a Sidbi executive told Business Standard.

The details of the package are expected to be announced after the Budget.

Chidambaram has asked Sidbi to submit plans incorporating the use of information technology for expanding the reach of credit to SMEs. Sidbi will submit its revised proposals by the first week of February.

Sidbi has identified 25 clusters for development. Thirupur has been identified for textiles, Chennai and Pune for automotives, and Ludhiana for hosiery.

The centres will concentrate on developing SMEs in their respective areas by extending credit, developing technical know-how and providing support.

In the direct lending initiative started about ten months back, Rs 1,800 crore (Rs 18 billion) have been disbursed by the Sidbi to SMEs.

"We have recently tied up with Crisil and are in talks with many banks for developing the rating system. A new company will be set up for doing the rating by May this year," the Sidbi executive added.