If a loan account is marked SMA, treat it as an early-warning clock—not as a final verdict and not as a reason to wait. First identify the exact overdue or cash-credit trigger, reconcile it with the bank’s records, and give the lender a dated, evidence-backed cure plan before the account moves further along the 90-day path.
For a term loan, the clock is driven by an amount remaining overdue. For cash credit or overdraft, the test is different: continuous excess over the lower of the sanctioned limit or drawing power drives SMA classification, while the wider “out of order” test also considers a 90-day absence of credits or credits insufficient to cover the previous 90 days’ interest. These distinctions matter because paying an arbitrary amount may not cure the actual trigger.
By Monei Matters Editorial Desk · Source check: 28 October 2026
Method note: This guide was prepared with research assistance using current RBI material accessible on the source-check date. No named human reviewer is claimed for this article.
The rule in plain English
The Reserve Bank of India’s prudential framework requires lenders to recognise incipient stress immediately on default and classify accounts into Special Mention Account categories. For loans other than revolving facilities, the categories are:
| Status |
Amount overdue for |
| SMA-0 |
Up to 30 days |
| SMA-1 |
More than 30 days and up to 60 days |
| SMA-2 |
More than 60 days and up to 90 days |
| NPA |
More than 90 days for a term loan, subject to the applicable rule |
For revolving facilities such as cash credit and overdraft, the RBI table uses continuous excess over the sanctioned limit or drawing power, whichever is lower:
| Status |
Continuous excess period |
| SMA-1 |
More than 30 days and up to 60 days |
| SMA-2 |
More than 60 days and up to 90 days |
The classification is part of the lender’s day-end process. The due date itself can therefore become the first overdue date if the full amount due is not received before that day-end process. The detailed rule and RBI’s worked example appear in the 2025 prudential-norms Master Circular.
This is a classification framework, not a promise that every account can be regularised by making one payment. Sanction terms, drawing power, unprovided interest, devolved obligations, other facilities and the lender’s verified ledger all affect the amount and action required.
Why a CC or OD account needs a different diagnosis
A term-loan instalment has a specified due date and amount. A cash-credit or overdraft account is monitored against both the sanctioned limit and drawing power. If drawing power falls because eligible stock or receivables decline—or because statements are missing or rejected—the operative ceiling may be below the headline sanction.
RBI’s “out of order” definition for a CC/OD account has three practical routes:
- The outstanding remains continuously above the sanctioned limit or drawing power, whichever is lower, for 90 days.
- The balance is within that ceiling, but there are no credits continuously for 90 days.
- The balance is within that ceiling, but credits during the previous 90 days are not enough to cover the interest debited during that period.
That means “the account is below the sanctioned limit” is not, by itself, proof that the account is regular. A borrower should ask the bank for the drawing-power calculation, the interest-debit total and the credited-turnover record used for classification.
The 48-hour evidence triage
Before proposing restructuring, refinance or settlement, establish what the bank’s system is actually measuring. Use this six-part evidence pack.
1. Classification record
Ask for the present status—regular, SMA-0, SMA-1, SMA-2 or NPA—the effective date and the stated reason. Record whether this was communicated through a notice, account statement, email, branch discussion or credit-monitoring report.
2. Facility map
List every facility with the same bank: term loans, CC/OD, bills, letters of credit, bank guarantees and devolved or invoked amounts. RBI generally applies NPA classification borrower-wise rather than only to the visibly irregular facility, with specific exceptions and detailed treatment for certain instruments. Do not assume that curing one account cures the whole relationship.
3. Due and paid reconciliation
For each due date, record:
- the amount contractually due;
- the date and amount actually credited;
- interest, penal charges and other debits;
- unapplied or reversed credits;
- the borrower’s calculation of the remaining shortfall; and
- the bank’s calculation, if available.
The purpose is not to win an argument by spreadsheet. It is to isolate a difference that the lender can verify and correct.
4. Drawing-power bridge for CC/OD
Start with the sanctioned limit, then show the latest drawing power accepted by the bank. Reconcile stock, receivable ageing, creditor deductions, unpaid stocks, margin and any ineligible items. Attach the underlying statements rather than sending only a summary number.
5. Cash-source proof
Separate cash that is already available from cash that is only expected. Bank balance, committed promoter funds and documented receivable collections are stronger than an unsigned projection or a hoped-for refinance.
6. A dated cure path
Set out what can be paid or corrected within 48 hours, seven days and 30 days. If the shortfall cannot be cured from evidenced sources, say so early and ask for the lender’s formal resolution process instead of promising an impossible regularisation date.
The borrower action map
Stage A: up to 30 days overdue or the first signs of stress
The main objective is to stop ambiguity. Obtain the ledger, identify the trigger and correct operational gaps such as a rejected stock statement, uncredited receipt or unresolved drawing-power calculation. If the stress is structural rather than administrative, submit a short cash-flow note explaining the cause, the amount required and the proposed action.
Stage B: SMA-1
Move from informal assurances to a signed and dated pack. Reconcile all facilities, quantify the exact cure amount and disclose dependencies. A proposal that depends on sale of an asset, promoter infusion or collection of a major debtor should include evidence of ownership, approvals, stage and realistic timing.
Stage C: SMA-2
Treat the remaining time as a decision window, not as extra negotiation time. Obtain written confirmation of the bank’s classification basis and decide whether the case is:
- a fully fundable regularisation;
- a documented request for restructuring or another resolution route;
- a disputed classification requiring an immediate factual representation; or
- a case needing independent legal, insolvency, tax or accounting advice.
Do not make a token payment simply to create a comforting narrative. RBI cautions that a solitary or few credits near a balance-sheet date must be examined where the account shows inherent weakness. The durable question is whether the applicable arrears or out-of-order condition has actually been cured.
A worked hypothetical
Assume a company has a ₹2 crore cash-credit sanction, but the latest accepted drawing power is ₹1.55 crore. The outstanding has remained at ₹1.72 crore for 45 days.
The relevant excess is not measured against ₹2 crore. It is measured against the lower drawing power of ₹1.55 crore, leaving a ₹17 lakh excess. On these simplified facts, the continuous-excess period has passed 30 days and falls within the SMA-1 band.
A useful response would show:
- how the ₹1.55 crore drawing power was calculated;
- whether updated eligible stock or receivables can legitimately change it;
- the source and date of any proposed ₹17 lakh reduction;
- the 90-day interest-debit and credit totals; and
- whether another facility with the bank is overdue.
This example is only a calculation framework. It is not a conclusion about any real account, and it ignores facility-specific terms, disputed entries and other facts a lender may consider.
What changes after NPA classification
For a normal NPA caused by arrears, RBI’s general upgradation rule requires payment of the entire arrears of interest and principal. Where the borrower has more than one credit facility from the same bank, the rule refers to the entire arrears across all those facilities. Restructured accounts and other special cases can have different upgradation conditions.
This is why the SMA period should be used to produce a complete facility-level reconciliation. Waiting until after classification can turn a manageable information gap into a wider funding and resolution problem.
Questions to take to the lender
- What is the exact classification and effective date in the bank’s system?
- Which amount, facility or out-of-order test triggered it?
- What are the bank’s figures for arrears, drawing power, 90-day credits and interest debits?
- Are any credits pending application, reversal or reconciliation?
- Which other facilities are relevant to borrower-wise classification or upgradation?
- What documents and approval level are required for the proposed cure or resolution route?
- What written acknowledgement will the bank provide after receiving the submission?
Use the Resolution Guides hub to organise the next document pack by problem type.
Practical next step
Create a one-page classification note supported by the ledger, sanction terms, drawing-power calculation and cash-source evidence. Send it through the bank’s acknowledged channel and preserve the submission record.
Disclaimer: This article provides general educational information for Indian borrowers and advisers. It is not personalised financial, legal, insolvency, tax, accounting or credit-sanction advice. Classification and resolution depend on the applicable RBI directions, lender type, written facility terms, account data and case-specific facts. Obtain advice from an appropriately qualified professional where required.
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