RBI Grade BNABARD ESISEBI
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Context:
The Union government is considering a proposal to extend the non-performing asset (NPA) classification period for loans given to micro, small, and medium enterprises (MSMEs) from the current 90 days to 180 days.
Key Highlights:
- Objective: To provide relief to cash-strapped MSMEs affected by steep US tariffs, supply chain disruptions, and liquidity stress.
- Comparison: Agriculture sector already enjoys longer repayment moratoriums (180–360 days). MSMEs, with cyclic/seasonal cash flows, seek similar flexibility.
- SMA Relaxation: The government may also relax the timeline for Special Mention Accounts (SMA), which are early indicators of loan stress.
Special Mention Accounts (SMA)
- A Special Mention Account (SMA) is a category introduced by RBI to identify and monitor incipient stress in loan accounts before they turn into Non-Performing Assets (NPAs).
- Objective: Early warning system for banks and financial institutions to take corrective action.
Classification of SMA Accounts
“RBI MPC Unpacked: Key Theory Meets Today’s Macro Trends”Tap to play · from the C4S channel
RBI (2014 framework) classifies SMA based on number of days a loan is overdue (principal or interest):
- SMA-0: Principal/interest overdue 1–30 days.
- SMA-1: Principal/interest overdue 31–60 days.
- SMA-2: Principal/interest overdue 61–90 days.
If overdue >90 days → NPA.
Non-Performing Asset (NPA)
An NPA is a loan or advance where the borrower has failed to make interest or principal payments for a specified period, indicating financial stress.
- As per RBI, a loan becomes NPA if interest or principal remains overdue for more than 90 days.
- Applies to commercial banks and financial institutions.
