Everything You Must Know About NPA and SMA Classification
(A CUSTOMER EDUCATION LITERATURE FROM LULU FINSERV ON SMA/NPA)
As per Master Direction DNBR.PD.007/03.10.119/2016-17 dated September 01, 2016, as amended as on 29/12/2023 applicable to NBFCs and RBI Circulars DOR.STR.REC.68/21.04.048/2021-22 dated November 12, 2021, and DOR.STR.REC.85/21.04.048/2021-22 dated February 15, 2022, NBFCs are required to comply with Prudential Norms on Income Recognition, Asset Classification, and Provisioning pertaining to Advances. The RBI directives stipulate that every NBFC shall, after taking into account the degree of well-defined credit weaknesses and extent of dependence on collateral security for realisation, classify its loans and advances and any other forms of credit into the following classes, namely: (i) Standard assets; (ii) Sub-standard assets; (iii) Doubtful assets; and (iv) Loss assets.
If an individual is not settling the loans on due dates or fails to repay the loan EMIs on time, then the company classifies the loan account of the individual as SMA (Special Mention Account) and NPA (Non-Performing Asset). The laws and guidelines relating to the classification of SMA and NPA issued by the RBI and other statutory authorities shall be binding on the borrower.
With a view to increasing the awareness among borrowers of Lulu Finserv, this document covers the concept of SMA, NPA related provisions for ease of understanding. The examples quoted herein are indicative and relate to general scenarios and are not exhaustive in nature. The guidelines issued amended by RBI from time to time shall prevail for implementation.
- Dues: Dues means the principal / interest / any charges levied on the loan account which are payable within the period stipulated as per terms of sanction of the loan.
- Overdue: Overdue means 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 loan. In other words, any amount due to the company under any loan is ‘overdue’ if it is not paid on the due date fixed by the company.
- Overdue account: An account is classified as “Overdue” if any amount due to Lulu Finserv under any credit facility is not paid on the due date fixed by Lulu Finserv & agreed by borrower as per the loan agreement. The amount may refer to principal or interest or any other amount due (whether wholly or partly due). The date of classifying a loan account as “Overdue” shall be the date on which the amount was due but not
paid by the borrower.
- Days Past Due (DPD): It indicates whether you have been consistent in your repayments and if you have missed any, how many instalments you have missed and by how many days. The counting of DPD will be considered based on the oldest
payment due date and the number of days falling due shall be counted to classify the loan account as NPA. In case the due date and billing date are different, the former would be considered for the purpose of calculating the DPD (days past due).
- SMA & NPA ACCOUNT: An account is classified as Special Mention Account (SMA) or Non Performing Account (NPA) based on days past due (DPD). The classification of borrower accounts as SMA as well as NPA shall be done as part of the day-end process for the relevant date and the SMA or NPA classification date shall be the
calendar date for which the day-end process is run. In other words, the date of SMA/NPA shall reflect the asset classification status of an account at the day-end of that calendar date.
- Non-Performing Asset (NPA): The Loan Account shall be classified as Non- Performing Asset (NPA) where interest and/ or instalment of principal remains overdue for a period of more than 180 days in respect of a loan.
4. Basis for calculation of SMA accounts.
There are three SMA sub-categories, i.e., SMA-0, SMA-1, and SMA-2.
For loans payable in instalments like personal loans, Business Loans, Consumer Durable loans etc.if the borrower fails to repay the principal or the interest amount partially or fully for up to 30 days, then the loan account will be classified as SMA-0. If the borrower fails to repay the amount for more than 30 days and up to 60 days, then the account will be classified as SMA-1. If the borrower has a loan overdue for more than 60 days and up to 180 days, then the borrower’s loan account will be classified as SMA-2.
For gold loans which are repayable in lumpsum on the loan due date, if the borrower fails to repay the principal or the interest amount fully for up to 30 days, then the loan account will be classified as SMA-0. If the borrower fails to repay the amount for more than 30 days and up to 60 days, then the account will be classified as SMA-1. If the borrower has a loan overdue for more than 60 days and up to 180 days, then the borrower’s loan account will be classified as SMA-2.
- SMA Sub-categories/ NPA : Basis for classification – Principal or interest payment or any other amount wholly or partly overdue
- SMA-1 : More than 30 days and up to 60 days
- SMA-2 : More than 60 days and up to 180 days
- SMA 0 – If due date of a loan account is 31st March 2023, and full dues are not received on this date, the account shall be SMA 0 on day end of 31st March 2023.
- SMA 1 – If the account continues to remain overdue, then this account shall get tagged as SMA-1 upon completion of 30 days of being continuously overdue i.e., 30th April 2023.
- SMA 2 – If the account continues to remain overdue, it shall get tagged as SMA-2 on 30th May 2021.
- NPA – If the account continues to remain overdue further, it shall get classified as NPA on 26th November 2023. If any one of your facilities gets classified as SMA/NPA, your other borrowings from Lulu Finserv shall also get classified as SMA/NPA. For example, if you have availed 2 loans from Lulu Finserv and only one loan account is in overdue status, both the loans shall get tagged as “Overdue” even if the 2nd loan is duly serviced or is in Current status.
5. Upgradation of accounts classified as NPAs
The loan accounts classified as NPAs may be upgraded as 'standard' assets only if entire arrears of interest and principal are paid by the borrower at the time of running the day-end activity of that particular date. You can move your account/s out of NPA by repayment of ALL the overdues in ALL the facilities availed by you from Lulu Finserv.
6. Effects of tagging an account as NPA.
A customer getting classified as NPA has several detrimental impacts on his/her credit profile. Some of the effects are as below:
- Reminders through phone calls, SMS, notices sent by the lender
- Recall of entire loan amount
- Visits by Collection agents for recovery of dues
- Attachment of your property/assets
- Downgrade of your credit score on Credit bureaus thereby making it difficult for you to avail loans in future
7. Standard / Sub-Standard / Doubtful Assets
- Standard asset shall mean the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business.
- Sub-standard asset shall mean an asset which has been classified as non-performing asset for a period not exceeding 18 months.
- Doubtful asset" shall mean a loan which remains a sub-standard asset for a period exceeding 18 months.
- Loss asset shall mean an asset which has been identified as loss asset by the non-
banking financial company or its internal or external auditor during the inspection of the applicable NBFC, to the extent it is not written off by the applicable NBFC; and an asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non-availability of security or due to any fraudulent act or omission on the part of the borrower.
8. Whom can I contact in case of queries?
For any account classification related queries, kindly connect with the nearest Branch Office of Lulu Finserv or write to email@example.com.
The information contained herein is generic in nature and is meant for educational purposes only. The examples quoted in the document are indicative and relate to general scenarios and are not exhaustive in nature. The guidelines issued amended by RBI from time to time shall prevail for implementation.