Customers can have different kinds of accounts at banks. This term SMA is utilized in the field of banking to identify the different bank accounts. What is SMA’s full definition in the bankingarea? The official version that is used for SMA is called Special Mention Account, and it serves to classify various types of accounts in banks. This blog post, we’ll examine the ways in which SMA is utilized in the field of banking. Concept of SMA within the banking industry
This concept known as SMA was formulated in 2014 by the Reserve Bank of India in 2014. This classification is crucial for banks to identify the accounts that are not performing. The banks will declare the accounts as not performing if they are not functioning properly. They will also examine the accounts on a regular basis to minimize the risks of default. After examining banks’ accounts banks will select the corrective action plan for the non-performing accounts.
Multiple SMA accounts in accordance with the principal balance remaining and interest payment
- SMA-0 SMA-0 It has some indications of stress. It is a sign that the principal payment or any interest due has become due but not longer than thirty days.
- SMA-1 A principal, or rate of interest is past due for between 31 and 60 days.
- SMA-2This category indicates that the principal amount, or interest rate is past due by 61-90 days.
- SMA-NF SMA-NF Non-financial stress factors have an impact on the value of the asset.
The effects from SMA on the Borrowers
Accounts in the SMA category impact the borrower in a variety of ways, like:
- SMAs lower their credit scores of people who borrow.
- SMAs can affect the credit history of borrower.
Conclusion
This blog discusses the full meaning of SMA for banks in a way that assists to categorize different bank accounts. The SMA concept helps banks to classify accounts into groups as according to the principal and interest rate.
