RBI circular no. RBI/2021-2022/125 DOR.STR.REC.68/21.04.048/2021-22 on ‘Prudential norms on Income Recognition, Asset Classification and Provisioning, pertaining to Advances – Clarifications’ dated Nov. 12, 2021
A. Clarification on Overdue: An amount is to be treated as overdue if it is not paid on the due date fixed by the Lender (before the Lender runs the day-end process for that day). Due Date is the date as specified in the Repayment Schedule on which the instalment is due to be paid.
B. Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA): The below Illustration covers the concepts of date of overdue, classification as Special Mention Account (“SMA”) and Non-Performing Asset (NPA), upgradation of loan account etc.
Working Capital Term Loan and Term Loan
SMA Subcategories Basis for classification – Principal or interest payment or any other amount wholly or partly overdue
SMA-0 Up to 30 days
SMA-1 More than 30 days and up to 60 days
SMA-2 More than 60 days and up to 90 days
NPA More than 90 days
Accordingly, the date of SMA/NPA shall reflect the asset classification status of an account at the day-end of that calendar date. An illustration of such classification is given below:
Classification as: Sample Scenario
Original Due Date 01 December 2021
SMA 0 01 December 2021 end of day
SMA 1 31 December 2021 end of day
SMA 2 30 January 2022 end of day
NPA 01 March 2022 end of day
C. Upgradation of accounts classified as NPAs Customer classified as NPAs may be upgraded as ‘standard’ only if entire arrears of interest and principal are paid by the customer. Further, in case of borrowers, having more than one credit facility from the Company, loan accounts shall be upgraded from ‘NPA’ to ‘Standard Asset’ category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities For example, ABC company has availed a loan from financial institution and failed to pay interest & principal for 2 installments for a continuous period of 90 days or more. In this case, his account will be marked as ‘NPA’. To upgrade his account from ‘NPA’ to ‘Standard Asset’, he should repay the overdue amount in full. Classification of borrower accounts as NPA shall be done as part of day-end process for the relevant date and NPA classification date shall be the calendar date for which the day-end process is run.
D. Impact of SMA Classification on the Credit report Any delinquency in the loan account as mentioned above is reported to Credit Information Companies and credit score of the customer shall get impacted adversely. Paying your instalments on time which helps you build your Credit Score. Higher Credit Score may help you get higher loan value with lower interest rates.
