What is SMA in Banking?

Hello,

The RBI divided the debt due to client groups into three categories which is the SMA meaning in banking or Special Mention Accounts in order to better manage problematic loans or loans that do not appear to generate any revenue for the banking concern despite being an asset for the organisation. Banks envisaged additional incentives for the early identification of these defaults.

• SMA-0 is a category in which there may be some early signs of stress with the loan account and both the principal and interest have gone unpaid for a period of 30 days after the payment due date.

• SMA-1 refers to a category when the principal and interest have remained unpaid for a duration of more than 30 to 60 days.

• The third category, SMA-2, was created to address the issue of bad loans with outstanding amounts with a duration of 61 days to less than 90 days. I hope this clarifies your query about what is SMA 2 in banking.

NPAs or non-performing assets are defined by the RBI as loan accounts that have been past due for 90 days or longer. In order for banks to recognise and treat loan accounts that are evolving into SMAs effectively, RBI has put in place a few non-financial indicators. 

Therefore, it is advised that the bank take all necessary corrective measures before the loan account actually becomes non-performing. These include restructuring any potentially viable accounts and setting up a Joint Lender's Forum (JLF) when the loan is more than 60 days past due and is classified as SMA2.

Additionally, if the loan account has been designated as SMA2, corrective action must be determined within a month. Reliance Communications recently missed interest payments on its loan accounts with various banks. 

Additionally, the loan accounts' classification as SMA1 or SMA2 indicates that there are likely greater odds that they will end up in the NPA category, which poses a serious threat to the whole banking industry.

I would like to conclude here as I believe this suffices your query about the SMA meaning in banking.

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