What is SMA in Banking?

In banking, SMA stands for Special Mention Account. It's a classification for accounts that show early warning signs of potential default. These accounts are identified as having a high risk of turning into Non-Performing Assets (NPAs) within the first 90 days of overdue payments or even earlier. The Reserve Bank of India (RBI) introduced this classification in 2014 to proactively identify and monitor such accounts, allowing for early intervention and potentially preventing further losses.

• Early Warning System: SMAs act as an early warning system for banks, flagging accounts that are at risk of becoming non-performing.
• Proactive Monitoring: The classification allows banks to proactively monitor these accounts and take corrective actions, such as restructuring loans or engaging with the borrowers to prevent defaults.
• Impact on Credit Reports: Delinquency in an account, leading to its classification as an SMA, is reported to credit bureaus like CIBIL. This can negatively impact a borrower's credit score. [Source: Punjab & Sind Bank document on SMA and NPA]
• Different Stages: While the initial identification usually happens within 90 days of overdue payments, SMAs can be further categorized into different stages (SMA-0, SMA-1, SMA-2, etc.) depending on the duration and severity of the overdue amount. [Source: IDBI Bank Policy on Revival of MSMEs]

The designation of an account as an SMA differs from an NPA classification. NPAs are accounts where the principal and/or interest payments have been overdue for a defined period (typically 90 days). SMAs are accounts identified as likely to become NPAs in the near future.

It's important to note that while the term "SMA" most commonly refers to Special Mention Accounts in banking, it also has other meanings in different contexts, including: Separately Managed Accounts in investments and abbreviations used in other fields (like medicine).