What is SMA in CIBIL Report

Are you thinking of starting a new business? Or are you facing a financial strain? Or are you simply planning to go on a much-needed vacation? Taking a loan has become common today. Along with this shift in the financial scenario, the significance of maintaining a healthy credit report is also coming into the limelight. A credit report gives the gist of your creditworthiness to the lenders. The report states different account statuses like LSS, STD, and SMA (Special Mention Account) to summarize your ability as a reliable borrower. Out of these, the blog will discuss the importance and interpretation of SMA in CIBIL reports, its association with the NPAs (Non-performing Assets), and a gist of the meaning of a credit report. 

What is a Credit Report?

Your credit report is like a complete record of your credit history that lenders and financial institutions use to assess your creditworthiness. Think of it as your financial resume that details your borrowing and repayment history, showing lenders the information they use to decide whether to give you a loan. This data comes from banks, credit card companies, and other lenders you've dealt with. Some details might also be from public records.

To access your credit report, you can visit the website of any of the four credit bureaus: CIBIL, Equifax, Experian, and CRIF Highmark. Each company compiles the credit report using data from various lenders and financial institutions. 

CIBIL reports, which are credit reports generated by CIBIL, are divided into sections that contain different types of information about your creditworthiness. Each credit bureau has its own format, but generally, credit reports include the following elements

1. Personal information: 

This section contains your name, address, date of birth, and current/previous accounts. You must review this section and report any incorrect information promptly to avoid potential fraud. 

2. Account information:

The account information section details your current and past credit accounts, including account numbers, ownership, loan types, outstanding balances, credit limits, payment history, and account status. The account status can be any one of the following-

• Standard (STD): Payment settled within 90 days.
• Special Mention Account (SMA): Indicates standard accounts moving towards sub-standard.
• Sub-Standard (SUB): Payment settled after 90 days.
• Doubtful (DBT): The account has remained sub-standard for one year.
• Loss (LSS): Reflects an uncollectible loss.

3. DPD:

Days Past Dues (DPD) records your payment schedule, even one-day delays. DPD is shown either as a remark or numerically (e.g., "XXX" if no information is submitted). Non-"000" or "XXX" DPD indicates late or incomplete payments.

4. Inquiries:

Credit inquiries occur when you or a lender requests access to your report. Soft inquiries do not affect your score, while hard inquiries can impact it significantly.

5. Credit Score:

Your credit score, ranging from 300 to 900, summarizes your credit history and influences loan approvals. Lenders use this score to assess your reliability as a borrower.

What is SMA reporting in CIBIL?

SMA stands for Special Mention Accounts in CIBIL reports, indicating accounts showing signs of becoming NPAs within 90 days. The Reserve Bank of India (RBI) introduced SMA in 2014 to identify accounts likely to become NPAs soon.

When a borrower pays late, even by a few days, the account is labeled SMA-0, triggering scrutiny from the lender. Continued delays can escalate the account to SMA-1 or SMA-2, indicating financial stress and potential NPA risk. This is an early warning for banks to monitor closely due to default risks. There are four SMA categories based on overdue payment durations-

1. SMA - 0: Accounts showing initial signs of stress where neither principal nor interest payments are overdue by more than 30 days.
2. SMA - 1: Accounts with principal or interest payments overdue by 31 to 60 days.
3. SMA - 2: Accounts with principal or interest payments overdue by 61 to 90 days.
4. SMA - NF: Indicates non-financial stress factors affecting an asset.

When does SMA change to NPA?

If you don't repay your loan interest or principal within 90 days, regardless of the loan type—like term loan, overdraft, or cash credit—the lender will mark your loan account as NPA (Non-Performing Asset). NPAs are categorized based on the time assets remain overdue.

• Sub-standard Asset: An asset is termed sub-standard if it's overdue for up to 12 months.
• Doubtful Asset: This category includes assets overdue for more than 12 months.
• Loss Asset: An asset becomes a loss asset if it remains non-performing for over three years. This indicates that the bank considers the asset irrecoverable, resulting in a total loss.

Will the SMA remark impact my credit score?

Special Mention Account (SMA) status can notably influence your CIBIL score. While being categorized as SMA-0 may not directly affect your CIBIL Score right away, transitioning to SMA-1 or SMA-2 can pose greater distress and risk, reducing your credit score. Therefore, you should address these issues promptly to safeguard your credit health. Neglecting to do so could lead to an NPA classification, further harming the credit score.

Can I mitigate the impact of SMA in CIBIL report?

Certain strategies can help you manage your SMA status and improve your credit score. A few of the strategies include-

• Timely Loan Repayment: To prevent loan default, you must repay consistently on schedule. 
• Communication with Lenders: If facing financial strain, you should openly discuss your situation with lenders. Lenders may propose solutions like restructuring loans or temporary relief options to assist you in overcoming financial hurdles and preventing your accounts from being classified as NPAs.
• Financial Planning: Employing effective financial planning methods can assist in managing debts and avoiding loan defaults. Practices such as budgeting, saving, and prioritizing debt repayment are all beneficial in maintaining a solid financial standing. 

For lenders, it is imperative to establish robust systems to detect early signs of SMAs and potential NPAs. They must regularly monitor loan accounts and identify borrowers facing financial difficulties. Conducting thorough risk assessments before lending will help them evaluate creditworthiness and repayment capacity. 

Conclusion:

Understanding Special Mention Accounts (SMAs) and Non-Performing Assets (NPAs) is essential for borrowers and lenders alike. SMAs warn early about accounts at risk of becoming NPAs, helping lenders take action early to reduce losses. Even though SMAs can affect credit scores, you can still improve them by adhering to repayment plans and managing your other debts well.

FAQs:

Q1. What is SMA full form in CIBIL report?

Ans. Special Mention Accounts is the SMA full form. CIBIL reports get an SMA remark when you delay the repayment of loans. 

Q2. What is the difference between NPA and SMA in CIBIL report?

Ans. SMA classification flags account at risk of becoming NPAs, while NPAs are assets that no longer generate income due to borrower non-repayment.

Q3. Is SMA applicable to every type of loan?

Ans. SMA classification applies to all loans except agricultural ones based on crop seasons, covering retail, commercial, and industrial sectors.