SOME IMPORTANT DEFINITIONS FOR CUSTOMERS
Learn About Terms Such as SMA, NPA, & More - With Illustration
Example for SMA and NPA in accordance with RBI
The Reserve Bank of India (RBI) has recently (November 12, 2021), clarified the method of
calculation of Special Mention Account and Non-Performing Asset (NPA) account, in case of
default by any customer.
Few important definitions and concepts:
Day-end process: At the end of every calendar day, SMFG India Credit Co. Ltd. (the
‘Company’) shall run a process to determine whether an account will be treated as overdue
or not. If by the time the day-end process is run, the dues from the customer are not received
into the designated bank account of the Company, the amount would be considered as not
received and therefore will be treated as overdue.
Special Mention Account (SMA): RBI guidelines require a lender like Company to immediately
recognize incipient stress in borrower account by classifying them as SMA. RBI prescribes three
levels for SMA recognition, viz., SMA-0, SMA-1 and SMA-2. For definition of SMA and grading
mechanism, you may refer RBI circular no. DBR.No.BP.BC.45/21.04.048/2018-19 dated June 7,
2019 on ‘Prudential Framework for Resolution of Stressed Assets’.
Illustration:
Assumed due date for an account: 4th calendar day of every month. (say, 4th July 2021)
If the EMI/entire dues of a particular account are not received into the bank account of the
Company before the day-end process is run on 4th July 2021, i.e. the due date, the
account shall be treated as overdue after day-end process. Accordingly, this account shall
be classified as SMA-0.
If this account remains continuously overdue even after the completion of day-end
process on 30th day from the initial due date, after its classification as SMA-0, the account
shall be classified as SMA-1, immediately after running of day-end process, if the full dues
are not received before day-end process is run on the 30th day.
Similarly, if the account continues to remain overdue for 60 days, it shall get classified as
SMA-2 upon running day-end process on the 60th day from the initial due date.
If the account remains continuously overdue for 90 days, it shall get classified as NPA upon
running day-end process on the 90th day from the initial due date, i.e. on the 91st day, the
account shall be classified as NPA.
Once an account has been classified as NPAs, it may be upgraded as ‘standard’ asset only
if the entire arrears of interest and principal are paid and the customer becomes current.
The above illustration has been further explained in the table below:
Day-end
DPD Scenario Classification
process on
04.07.2021 1 If full dues are not received before the day-end process SMA 0
03.08.2021 31 If full dues are not received before the day-end process of SMA 1
30th day
02.09.2021 61 If full dues are not received before the day-end process of SMA 2
60th day
02.10.2021 91 If full dues are not received before the day-end process of NPA
90th day
Loans is in the nature of revolving facilities i.e. Loan Against Securities (LAS)
Example for out of order, Special Mention Accounts (SMA) and Non-performing Assets (NPA)
in accordance with RBI
Special mention Accounts (SMA):
Sr. Basis for classification – Outstanding balance remains SMA Sub-categories
No. continuously in excess of the sanctioned limit or drawing
power, whichever is lower, for a period of:
1 More than 30 days and upto 60 days SMA-1
2 More than 60 days and upto 90 days SMA-2
Out of Order
Overdraft account is classified as NPA if it is ‘out of order’. An account will be treated as ‘out of
order’ if:
a. the outstanding balance in the OD account remains continuously in excess of the
sanctioned limit/drawing power for 90 days, or
b. the outstanding balance in the OD account is less than the sanctioned limit/drawing
power but there are no credits continuously for 90 days, or the outstanding balance in
the OD account is less than the sanctioned limit/drawing power but credits are not
enough to cover the interest debited during the previous 90 days period.
