Meeting with RBI Officials
MSMEs during a crucial meeting held in Mumbai under the auspices of the RBI demanded the central bank to increase the threshold period to classify them as stressed loan accounts within the special mention account-2 (SMA-2) category and such accounts duration up to 180 days instead of the existing 90 days. Deputy Governors M Rajeshwar Rao and J Swaminathan chaired this meeting.
Request for Extension
The Federation of Indian Micro and Small & Medium Enterprises (FISME) has initiated the request and cited the negative effect of the current SMA categorization on MSMEs. “The current SMA classification helps penalty even for the delay in payment for 0 days (SMA-0) affect the credit scores (SMA-1) and restrict the credit access (SMA-2)” FISME explained in the mentioned memorandum to the officers of the RBI.
Understanding SMA Classification
Further, special mention accounts (SMA) are created as a sub-asset category based on latent stress before the account migrates into a nonperforming asset (NPA) category. When the first hints of illness or deviations from the payment schedule for the loan are observed, an account is transferred to this category. There are three types of SMAs: There are three types of SMAs:
SMA-0: This is when The principal or interest payment is not overdue but the file exhibits early signs of stress with the 30-day rule.
SMA-1: This means that if the payment of the principal or the interest is SO/31 to SO/60 days past due.
SMA-2: When the principal or interest payment is due and it is between one and two months late.
Impact on MSME Borrowers
Specifically, when an account is classified under the SMA category, the MSME borrowers cannot use the existing credit facilities to clear the outstanding amounts and consequently, they derail efforts for recovery. This imposes extra difficulty for MSMEs which are often compounded by business hitches, which, in several cases, result from late payments by the buyers.
