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Do you know, what is SMA - 0, 1, 2 and NPA?
If you have ever invested in banking stocks or companies that are into the business of lending, this might be an important mail for you.
We have all come across terms like NPA, GNPA, NNPA, etc, but do you know about SMA?
Let's look at what SMA means and how is it different from NPA.
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- SMA - Special Mention Accounts
- SMA classification was introduced by RBI in 2014 to identify accounts that have the potential to become NPA
- The logic behind such a classification is because some accounts may turn NPA soon and can be tackled better through early identification
- Difference between NPA and SMA?
- NPA - it is that loan account in which the principal or interest payment or both have remained overdue for a period > 90 days
- SMA - In this principal or interest payment or both are overdue but for a period < up to 90 days
- SMA account could also have other non-financial signs of stress
- SMA categorization - SMA accounts are usually categorized in terms of duration
- SMA 0 - Principal or interest wholly or partially overdue for 1-30 days
- SMA 1 - overdue 31-60 days
- SMA 2 - overdue 61-90 days
- Banks asset classification - Refer attached image
We hope next time you read an Annual Report or attend a con-call of a banking stock, understanding SMA will be much easier for you.
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Disclaimer: This is not a recommendation to buy/sell banking stocks.
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