Recently, with the rise in fintechs which operate digital lending apps, for the sharp rise in unsecured loans, they themselves are sitting on over Rs 93,240 crore of unsecured loans which are in the special mention accounts (SMA) category, or loans which are showing signs of stress or repayment is overdue.

  • These special mention accounts are almost seven per cent of their total unsecured loan outstanding of Rs 13.32 lakh crore.
  • Special mention account categories (SMA)—SMA-0, SMA-1 and SMA-2 — of public sector banks stood higher with an SMA of 9.9 per cent in unsecured personal advances as compared to 4.0 per cent for private banks for unsecured retail loans category as on March 31, 2023. At an aggregate level, banks have 7 percent of their unsecured retail loans in the SMA-0, 1 and 2 categories, according to Care Ratings
  • According to the RBI classification, in the SMA-0 category, principal or interest payment is not overdue for more than 30 days but account is showing signs of incipient stress. In SMA-1, principal or interest payment is overdue between 31-60 days and in the case of SMA-2, principal or interest payment overdue between 61-90 days. If the repayment is delayed by more than 90 days, it’s classified as a non-performing asset (NPA).
  • The growth of unsecured personal loans (including credit card receivables, consumer durable loans and other personal loans) in banks from March 2017 to March 2023 stood at 21 per cent outpacing the personal loan growth which exhibited a growth of 19 per cent during the same period.
  • Unsecured personal loans account for almost one-third of overall bank’s personal loan credit of Rs. 40.9 lakh crore as of March 31, 2023 and NBFCs account for Rs 10.9 lakh crore of personal loans, as per a Care report. Care Ratings, which conducted a poll assessing the potential impact on various lender categories in the event of unsecured personal loans turning sour, said fintech NBFCs emerge as the most susceptible, with private sector banks, public sector banks and other NBFCs following in decreasing order of potential impact.
  • This underscores the need for a vigilant approach to risk management, especially for fintech NBFCs, in navigating the challenges associated with the unsecured personal loan segment.

Special Mention Account (SMA)

  • Special Mention Account (SMA) is an account which is exhibiting signs of incipient stress resulting in the borrower defaulting in timely servicing of her debt obligations, though the account has not yet been classified as NPA as per the extant RBI guidelines.
  • As early recognition of such accounts will enable banks to initiate timely remedial actions to prevent their potential slippages into NPAs.

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