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CS Professional · Banking and Insurance - Laws and Practice · Performing and Non Performing Assets

A bank has a term loan to Mehta Plastics with an instalment due on 1 March that was not paid. Mehta Plastics pays the full overdue amount on 20 March. Under the RBI framework, what is the status of the account on 21 March?

The account reverts to regular standard status with no SMA tag. SMA classification reflects the current overdue position, and once Mehta Plastics clears the entire overdue amount, nothing remains overdue, so the earlier SMA-0 tag is removed at the day-end process.

  1. AIt stays SMA-1 until the next quarter end
  2. BIt is SMA-0 until 90 days pass
  3. CIt is upgraded and shown as a regular standard account with no SMA tag, since there is no overdueCorrect
  4. DIt becomes SMA-2 because of the earlier default

Explanation

SMA tagging depends on the overdue position as at the day-end process. Once the full overdue amount is cleared, the account has no overdue and the SMA tag is removed. The 20-day lapse would have meant SMA-0 while it lasted, but there is no residual tag after full payment.

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