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Special Mention Accounts and Non-Performing Assets: RBI's 90-day rule

By CAShorts DeskPublished Updated Source: RBI circulars of 2015, 2016, 2019 and 2021; Business Standard

Why in news: Reported on 12 October 2026: industry body FISME proposed that the SME Growth Fund, approved on 6 October, also aid SMA-2 and NPA borrowers.

Special Mention Accounts and Non-Performing Assets: RBI's 90-day rule
Illustration (AI-generated)

Special Mention Accounts (SMA) are the Reserve Bank of India's early-warning classes for a loan in default: SMA-0 up to 30 days overdue, SMA-1 up to 60 and SMA-2 up to 90. After 90 days it becomes a Non-Performing Asset (NPA). Reported on 12 October 2026: industry body FISME wants the SME Growth Fund to aid SMA-2 and NPA borrowers.

Syllabus: GS3 · Indian Economy & Growth; Prelims · Economy & Social Development

Why this matters for UPSC

GS3 Indian economy and banking: Prelims asks how the RBI classifies stressed loans (the SMA bands, the 90-day NPA rule, sub-standard, doubtful and loss assets, CRILC); Mains asks about bad-loan recognition and MSME credit.

In short

Special Mention Accounts are the RBI's early-warning bands for a loan in default; dues unpaid beyond 90 days turn it into a Non-Performing Asset.

From default to NPASMA-0 up to30 daysSMA-1 up to60SMA-2 up to90NPA beyond90 daysSub-standard,thendoubtful

Strict, uniform NPA recognition should stay; the gain lies in using the SMA window to revive viable small firms before default hardens into loss.

Why it matters

A small manufacturer that misses a loan instalment by a few weeks is already tagged SMA-1 or SMA-2 in the bank's books. If the dues stay unpaid past 90 days, the account turns NPA: the bank stops counting its interest as income, must set aside provisions against it and becomes wary of lending fresh working capital, which can push a still-viable unit towards closure. The SMA bands exist so that banks act early, by rectifying or restructuring the loan, before that point. The larger question is how to tell a firm in temporary trouble from one that is structurally unviable, the line on which FISME's demand and the Chief Economic Adviser's call to review MSME loan-classification norms both turn.

Prelims pointers

  • Non-Performing Asset: a loan whose interest or principal stays overdue for more than 90 days; an asset becomes non-performing when it stops generating income for the bank.
  • Farm loans: NPA when overdue for two crop seasons for short-duration crops, one crop season for long-duration crops (season longer than one year).
  • NPA classes: sub-standard asset (NPA for up to 12 months), doubtful asset (12 months in sub-standard), loss asset (found uncollectible but not wholly written off).
  • A cash credit or overdraft turns NPA when 'out of order': balance above the limit for 90 days, no credits for 90 days, or credits not covering interest.
  • Classification is borrower-wise: when one facility of a borrower turns NPA, all that borrower's facilities with the bank are treated as NPA.
  • Restructuring a standard account downgrades it at once to NPA (sub-standard); it can be upgraded only after satisfactory performance through the monitoring period.
  • Section 35AA, Banking Regulation Act, 1949: lets the RBI direct banks to start insolvency proceedings against a defaulter under the Insolvency and Bankruptcy Code, 2016.
  • The 2019 framework withdrew Corporate Debt Restructuring, the Strategic Debt Restructuring Scheme and S4A, and discontinued the Joint Lenders' Forum.

Practise a UPSC-style question

With reference to Special Mention Accounts (SMA) under the RBI's 2019 Prudential Framework for Resolution of Stressed Assets, consider the following statements:

1. A term loan with an amount overdue for more than 30 days and up to 60 days is classified as SMA-1.

2. A cash credit account is classified as SMA-0 when its balance exceeds the drawing power for up to 30 days.

Which of the statements given above is/are correct?

  1. (a) 1 only
  2. (b) 2 only
  3. (c) Both 1 and 2
  4. (d) Neither 1 nor 2
Show the answer

Answer: (a) 1 only

1 is correct: SMA-1 covers amounts overdue for more than 30 and up to 60 days. 2 is incorrect: revolving facilities such as cash credit have only SMA-1 and SMA-2; there is no SMA-0 band for them.

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