Customer education
What happens when a repayment is missed.
How a loan becomes overdue, how lenders classify it as a Special Mention Account or a Non-Performing Asset, and what it takes for it to return to normal. The same rules apply at every bank and NBFC in India.
The terms
Due, overdue, SMA and NPA.
Due date
The date by which a repayment, whether principal, interest or both, must be paid. It is stated in your loan agreement and Key Facts Statement, along with how often you repay and how each payment splits between principal and interest.
Overdue
Any amount not paid by its due date. A loan is overdue from the due date itself, not from some later point. Lenders check accounts in a day-end process, run for each calendar day, and a loan becomes overdue if its full dues have not been received when that process runs for the due date.
Special Mention Account (SMA)
A loan that is overdue but not yet non-performing. SMA is an early-warning stage, with three levels according to how long the account has stayed overdue.
Non-Performing Asset (NPA)
A loan on which an amount has stayed overdue for more than 90 days. Classification happens as part of the day-end process, on the day the account crosses the threshold.
Classification
How long overdue, and what it is called.
| Classification | Principal or interest overdue for | What it means |
|---|---|---|
| SMA-0 | Up to 30 days | An early warning. A repayment is overdue. |
| SMA-1 | More than 30 days, up to 60 days | The overdue has persisted for over a month. |
| SMA-2 | More than 60 days, up to 90 days | The last stage before the loan becomes non-performing. |
| NPA | More than 90 days | A Non-Performing Asset. The loan has stopped performing. |
Day ranges for loans other than revolving facilities such as cash credit or overdraft.
The Reserve Bank's example
One missed repayment, day by day.
- 01Due date of the repayment31 March 2021Full dues are not received before the day-end process for this date is run.
- 02Date of overdue31 March 2021The account is overdue from the due date itself.
- 03Classified SMA-130 April 2021At the day-end process, on completing 30 days continuously overdue.
- 04Classified SMA-230 May 2021If it is still overdue.
- 05Classified NPA29 June 2021If it is still overdue.
Getting back to normal
Upgrading an account.
From SMA
An account leaves SMA once the overdue amounts are paid, so that nothing remains overdue.
From NPA
A loan classified as a Non-Performing Asset is upgraded to standard only when the entire arrears of interest and principal are paid. Paying some of the arrears is not enough.
What it means for you
Your repayment record, including any SMA or NPA classification, is reported to credit information companies and affects your credit score and your ability to borrow elsewhere. A penal charge may also apply to overdue amounts, as set out in the schedule of charges.
If you expect to miss a repayment, contact us before the due date. If you think your loan has been classified wrongly, you can raise a complaint.
Source
Published as consumer education literature under the Reserve Bank of India circular “Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances - Clarifications”, 12 November 2021, which applies to all non-banking financial companies and requires lenders to explain these concepts, with examples, on their websites. The day ranges and the worked example above are the Reserve Bank’s.