Customers maintain the different types of accounts in the banks. The term SMA is used in the banking field to classify the different bank accounts. What is SMA full form in banking area? The full form of SMA is Special Mention Account and it is used to categorize the various kinds of bank accounts. In this blog, we will discuss how SMA is used in the banking field.Concept of SMA in the banking sector
The concept of SMA was introduced by the Reserve Bank of India in 2014. This classification is important for the banks to know the non-performing accounts. The banks will announce the accounts as non-performing if they do not function properly. They will also check the accounts minutely to reduce the default risks. After checking the bank accounts, the banks will choose the corrective action plan for those non-performing accounts.
Different SMA accounts according to the outstanding principal amount and interest payments
- SMA-0- It shows some signs of stress. The principal or interest payment is overdue but not more than 30 days.
- SMA-1– The principal or interest rate is overdue by 31 to 60 days.
- SMA-2– This category shows that the principal amount or interest rate is overdue by 61 to 90 days.
- SMA-NF- Non-financial stress factors are impacting the asset.
Effects of SMA on the borrowers
Bank accounts under the SMA category affect the borrowers in many ways such as:
- SMAs reduce the credit score of the borrowers.
- SMAs will impact the credit history of the borrowers.
Conclusion
This blog explains SMA full form in banking and how it helps to categorize the different bank accounts. The SMA concept is helpful for the banks to divide the accounts into categories as per the principal and interest rate.
