Customer Education Documents for Understanding of SMA and NPA

Here are certain terms of related to the borrower account basis that track record of the borrower is monitored and shared with different CICs. In terms of various stages flagging of accounts pertaining to credit facilities/financial assistance availed by customers from the Bank as Overdue shall be done by the Bank as part of the Bank’s Day-end processes for the Due Date, irrespective of the time of running such processes by the Bank. Classification of accounts pertaining to credit facilities/financial assistance availed by customers from the Bank as SMA as well as NPA shall be done as part of day-end process for the relevant date.

Dues:

The principal / interest/ any charges levied on the loan account which are payable within the period stipulated as per the terms of sanction of the credit facility.

Overdue:

The principal / interest/ any charges levied on the loan account which are payable but have not been paid within the period stipulated as per the terms of sanction of the credit facility. In other words, any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.

Relevance of the Principle of ‘First In First Out’ (FIFO) in appropriation of payments into the borrower account:

The Principle of FIFO i.e., ‘First In, First Out’ accounting method is relevant to arrive at the No. of days of overdue for determining the SMA / NPA status. The FIFO principle assumes that the oldest outstanding dues in the loan account needs to be cleared first. The FIFO method thus requires that what is due first must be paid by the borrower first. For example, if in any loan account as on 01.02.2021 there are no overdue and an amount of Rs. X is due for payment towards principal instalment/interest/charges, any payment being credited on or after 01 02.2021 in the loan account will be used to pay off the dues outstanding on 01.02.2021

Assuming that nothing is paid /or there is partial payment (Rs Y) of dues during the month of February, the overdue as on 01.03.2021 will be Rs .X-Y. Additionally, an amount of Rs.Z becomes due as on 01.03.2021, Now any payment /partial payment into the account on or after 01.03.2021 will be first utilized to pay off the partial due of 01.02.2021 ( Rs X - Rs.Y) If there is more recovery than the Rs X - Rs Y. then after recovering dues of 01.02.2021, the remaining amount will be treated as recovery towards due of 01.03.2021.

Age of oldest Dues:

The age of oldest dues is reckoned in days from the date on which the oldest payment is due and continues to remain unpaid In the aforesaid illustration, if the Dues relating to 1 st February 2021 remain unpaid till 01.03.2021, the age of the oldest dues is reckoned as 29 days on 02.03.2021.

Non-performing Asset (NPA):

NPA is a loan or an advance where:

• interest and/ or instalment of principal remains overdue for a period of more than 90 days in respect of a term loan,
• the account remains ‘out of order’ as indicated below, in respect of an Overdraft/Cash Credit (OD/CC),
• the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
• the instalment of principal or interest thereon remains overdue fortwo crop seasons for short duration crops,
• the instalment of principal or interest thereon remains overdue for one crop season for long duration crops.

‘Out of Order’ Status (applicable only in case of CC/OD):

An account shall be treated as ‘out of order’ if:

• the outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or
• the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or
• the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period.

Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA)

Lending institutions will recognize the incipient stress in loan accounts, immediately on Default, by classifying them as Special Mention Accounts (SMA) The basis of classification of SMA / NPA Category shall be as follows:

Standard Assets:

Standard Asset is one which does not disclose any problems, and which does not carry more than normal risk attached to the business. Although the accounts which are in SMA category will be treated as standard accounts only

NPA classification due to non-renewal of CC/OD limits/ non-submission of stock statements:

The bank also classifies a CC/OD account as NPA if limits are not renewed within 180 days from the due date. Stock statements relied upon by the bank for determining drawing power should not be older than three months. The outstanding in the account based on drawing power calculated from stock statements older than three months would be deemed as irregular and such an account will be classified as NPA after 90 days from the date of irregularity.

NPA classification at borrower level:

NPA reporting is borrower level as per regulatory guidelines and thus, overdue in any one account of borrower will result in reporting of borrower as NPA for all the running Loans of the borrower.

Upgradation of accounts classified as NPAs:

The bank would be upgrading the loan accounts classified as NPAs as 'standard' asset only if entire arrears of interest and principal are paid. Upgradation of accounts classified as NPA due to restructuring, non-achievement of date of commencement of commercial operations (DCCO), etc. will be governed by specific regulations.

Illustrative movement of an account to SMA category to NPA category based on delay / nonpayment of dues and subsequent upgradation to Standard category at day end process:

*SMA categorisation and SMA since date is applicable only in case of Term Loans. In case of CC/OD, the SAME categorisation and SMA since date to be read as ‘NA’.