Special Mention Account

Also called: SMA, SMA-0, SMA-1, SMA-2 · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT

Meaning

A Special Mention Account (SMA) is a bank loan whose interest or principal payment is overdue by 1 to 90 days. It shows early signs of stress, but it is still not an NPA (non-performing asset, or bad loan) [2]. Depending on how many days the payment is late, the account is labelled SMA-0 (1-30 days), SMA-1 (31-60 days) or SMA-2 (61-90 days).

It matters because it works like a warning light. It gives banks a chance to act while the loan can still be saved, before it crosses the 90-day line and becomes an NPA.

Explanation

How the SMA ladder works

• Standard asset: the borrower pays on time. The loan carries only normal business risk [1].
• If a payment is missed, a counter starts on the day it falls due. The account then moves up the SMA stages:

Class	Days overdue	What it signals
SMA-0	1-30	first missed payment
SMA-1	31-60	stress building
SMA-2	61-90	one step away from NPA

• Day 91 onward: the loan becomes an NPA, because interest or a principal instalment has stayed overdue for more than 90 days [1].
• Still standard in the books: an SMA loan is not an NPA [2]. So the bank does not yet face the heavy NPA rules:
• It can still count interest from this loan as income.

• It keeps only the standard-asset provision (money set aside for possible losses). This is 0.40% in general, 0.25% for farm and SME loans, and 1% for commercial real estate.

• What decides the label is repayment. RBI classifies loans by whether money is actually being paid back [2].

• Short paperwork gaps do not make a loan an NPA by themselves. Examples are a late stock statement or a limit not renewed on time [2].

Worked timeline (a term loan)

• An instalment falls due on 1 January 2024 and is not paid.
• Day 1: SMA-0 → Day 31: SMA-1 → Day 61: SMA-2.
• Day 91 (about 1 April 2024): the loan becomes an NPA and is labelled sub-standard.
• After that, it gets worse the longer it stays unpaid:
• Doubtful D1 from about April 2025
• D2 from about April 2026

• D3 from about April 2029

• Why the SMA window matters: the SMA stages cover the only 90 days in which the loan can be fixed at standard-asset cost. Once it becomes an NPA, the provision jumps:

• 15% for a sub-standard loan
• 25% for the unsecured part of a sub-standard loan

CRILC: making SMA status visible to all banks

• CRILC (Central Repository of Information on Large Credits) is RBI's central database of large loans.
• Banks must report every borrower with total exposure of Rs 5 crore and above to CRILC, along with the borrower's SMA status.
• Why this matters:
• A company is in SMA-2 at Bank A.
• Through CRILC, Banks B and C can see this.
• So the company cannot quietly default at one bank while it keeps borrowing from the others.

What pushes loans into SMA, and what the stricter rules changed

• Into SMA: any delay in paying interest or principal, such as cash-flow problems, falling sales or a downturn.
• November 2021 clarification (tightening):
• NPA status is now tagged every day, on the exact date the overdue limit is crossed. Earlier, some banks checked only at month-end or quarter-end. So the SMA-2 to NPA move can no longer be delayed until the next reporting date.
• An NPA returns to standard only when all arrears of interest and principal are cleared. This stops "evergreening", where a borrower pays a small amount just to make a bad loan look healthy.

In India

• Who runs it: the RBI sets the rules under its IRAC norms (Income Recognition and Asset Classification). Banks classify their own loans and report large borrowers to CRILC.
• Where it fits: the SMA stage sits between "standard" and "NPA" in the IRAC classification ladder [2].
• Farm loans follow a different clock. They become NPAs by crop season, not by the 90-day rule:
• Short-duration crops: NPA after two crop seasons overdue [1]
• Long-duration crops (a crop season longer than one year): NPA after one crop season overdue [1]

• The reason: a farmer can repay only after harvest.

• Background to the 90-day line: the NPA limit was 180 days before 2004. The move to 90 days brought India close to the Basel norms (global banking-safety standards).

• Results of stricter recognition:
• The Asset Quality Review (AQR), 2015 forced banks to show hidden stress [4].
• Scheduled commercial banks' (SCBs') gross NPA peaked at about 11.2% (March 2018).
• It fell to 2.15% (end-September 2025, provisional), a historic low [3].

Don't confuse with

• Non-Performing Asset (NPA): a loan becomes an NPA only when payment is overdue for more than 90 days [1]. SMA covers 1-90 days and is not an NPA [2].
• Sub-standard asset: this is the first NPA class (NPA for up to 12 months) [1]. SMA-2 is the last stage before NPA, not a type of NPA.
• Stressed assets: this means Gross NPA + restructured standard advances + written-off loans. It measures stress that has already been recognised or hidden. SMA is an early-warning label on loans that are still standard.
• ECL Stage 2 ("significant rise in credit risk"): under the Expected Credit Loss model, this stage needs a lifetime expected-loss provision. An SMA loan today carries only the standard-asset provision. ECL is still a proposal in India (discussion paper 2023 [5]; draft directions October 2025 [6]).

Prelims Hooks

• SMA-0 / SMA-1 / SMA-2 = 1-30 / 31-60 / 61-90 days overdue. All three are still not NPAs [2].
• NPA = interest or principal overdue for more than 90 days [1]. The limit was 180 days before 2004.
• CRILC is RBI's database of large loans. Banks must report every borrower with exposure of Rs 5 crore and above, including SMA status.
• Trap: "An SMA-2 account must be provided for at 15%." Wrong. 15% applies to sub-standard (NPA) loans. SMA loans are standard assets (general provision 0.40%).
• November 2021 rule: NPA status is tagged daily. An NPA is upgraded only after all arrears are cleared.
• Farm loans do not follow SMA day-buckets to reach NPA status. They become NPAs after 2 crop seasons (short-duration crops) or 1 crop season (long-duration crops) overdue [1].

Mains Points

• Early warning helps early resolution.
• When a loan is flagged at SMA-0 or SMA-1, the bank can act while it can still be saved, for example by working out a repayment plan with the borrower.
• CRILC reporting (Rs 5 crore and above) lets all lenders see a stressed borrower. This stops default at one bank while the company keeps borrowing from others.

• This supports the 4R strategy (Recognise, Resolve, Recapitalise, Reform) [4], which helped bring gross NPA down from about 11.2% (2018) to 2.15% (2025) [3].

• The provisioning gap and the ECL shift.

• Under the current incurred-loss model, a bank sets money aside only after a default. So an SMA-2 loan, already close to default, still carries only the standard provision.
• When many loans cross Day 90 together in a downturn, provisions jump sharply. Bank capital shrinks just when the economy most needs credit.

• ECL (proposed with a prudential floor and a gradual phase-in [6]) would make banks set money aside earlier, as soon as credit risk rises sharply (Stage 2).

• Trade-off: strict recognition vs flow of credit.

• Daily tagging and a firm 90-day line protect depositors and financial stability.
• But seasonal and small borrowers, such as MSMEs and farmers, can slip into SMA or NPA because of short cash-flow gaps. Hence the crop-season rules for farm loans.
• Too much relaxation of these rules brings back evergreening and hidden NPAs. Every rupee of bad loan not provided for eats into the bank's net worth and Basel III capital.

Related concepts

• Standard asset
• Non-Performing Asset
• Sub-standard asset
• Doubtful asset
• Loss asset
• Gross and net NPA
• Loan loss provisioning
• Provisioning Coverage Ratio
• Stressed assets
• Expected Credit Loss provisioning

Read more

• Recognising bad loans: SMA, NPA classification and provisioning (IRAC norms)