SMA ACCOUNTS - ECONOMY
News:
ARCs want banks to sell loan accounts
showing signs of incipient stress
What's in the news?
●
Recently, Asset
reconstruction companies (ARCs) want banks to sell bad loans at an incipient
stage as the scope for recovery is brighter.
SMA Accounts:
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Special Mention Accounts
are those assets/accounts that show symptoms
of bad asset quality in the first 90 days itself or before it being
identified as NPA.
Introduced by:
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The classification of
Special Mention Accounts (SMA) was introduced by the RBI in 2014, to identify
those accounts that have the potential to become an NPA/Stressed Asset.
Types of Special Mention
Accounts:
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SMA
0: Loan principal or interest is unpaid for 0 – 30
days from its due date.
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SMA
1: Loan principal or interest is unpaid for 31 – 60
days.
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SMA
2: Unpaid for 61–90 days.
Go back to basics:
Types of Stressed
Assets:
Sub-standard Assets:
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If the borrower fails to
repay the installment, interest on principal or principal for 90 days the loan
becomes NPA and it is termed as Special Mention Account (SMA).
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If it remains SMA for a period less than or equal to 12 months it is termed as Substandard
Assets.
Doubtful Assets:
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If the Sub-standard assets remain so for 12 months
or more, then it would be termed as Doubtful Asset.
Loss Assets:
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If the loan is not
repaid even after it remains substandard
for more than three years it would be called as loss Asset.
Written Off Assets:
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Written off assets are
those on which the bank or lender doesn’t
count the money the borrower owes to it.