What is SMA in CIBIL Report - Meaning, Types & Importance

SMA or Special Mention Accounts is a classification of loan accounts showing early signs of financial stress. SMA in CIBIL report is a direct repercussion of a delayed or missed payment. Banks and NBFCs use this classification to flag accounts that are at risk of turning into potential Non-Performing Assets (NPAs). These accounts are classified according to the number of days an account is overdue. Read this blog as we delve deeper into the underlying importance of SMA and how it affects your creditworthiness and loan approvals.

SMA in CIBIL Report - Meaning and Significance Explained
 

If you encounter a SMA in your CIBIL report, the most likely reason is that you have one or more missed payment. Banks and NBFCs in India classify accounts with unpaid dues for more than 90 days as NPAs. An SMA status shows that you have already missed payment and depending on the number of days for which the payment is overdue, your SMA status can be labelled from 0 to 2. The classification system was introduced by the Reserve Bank of India for lenders to identify accounts under financial distress with a potential to turn into an NPA. 

Types of Special Mention Accounts

Depending on the number of days since payment is overdue, the RBI classifies Special Mention Accounts into three main categories as follows:

In addition, an SMA-NF category indicates non-financial stress factors affecting an asset. SMA 0 to 2 are clear signs of financial distress in an account and are early indicators of an account turning into an NPA.

How SMA in CIBIL Report Affects Loan Approval

An SMA status in your CIBIL report is detrimental to your creditworthiness. It shows that you have missed timely payments – the most important factor determining your CIBIL score. Depending on the SMA category, these accounts in your CIBIL report can impact your credit score.

This is why it is always good practice to periodically check CIBIL score to identify SMA in CIBIL report; particularly if you have missed payments in the recent past. A low CIBIL score due to SMA status automatically leads to reduced creditworthiness and lower chances of loan approval. Here are some other direct and indirect ways in which SMA in CIBIL impacts loan approval.

•    Reduced borrowing capacity
•    Higher interest rates
•    Unfavourable loan terms & conditions
•    Stricter scrutiny of credit report
•    Increased changes of rejection

How to Clear SMA in CIBIL Report

Missing a payment due date is only human. Even the most financially responsible and disciplined individuals sometimes miss a payment. On the brighter side, it is possible to mitigate the impact of an SMA on your credit report by adopting the following best practices.

Clear Overdue Payments

The first step to remove SMA status from your loan accounts is to clear the dues. Identify all overdue payments and make it a priority to clear the dues without any further delay. This will not only mitigate the risk of aggravated impacts of extreme SMA status but also help remove SMA from CIBIL report.

Plan Future Repayments

Consider your total current monthly repayment amount for all active loan and credit card accounts. Budget your spending and personal financial obligations to plan a future repayment schedule and budget. Stick to this schedule and budget religiously. 

Ensure Timely Repayments

Make it a habit to repay all dues on time or before the due date. Setting up autopay can be helpful under such circumstances. This way, you will never have to remember a due date and the repayment amount will be automatically deducted from your bank account on the due date.

Reach Out to Lenders

Even if you are unable to make an overdue payment immediately, it is advisable to communicate with your lender. Under ideal circumstances, lenders can offer loan restructuring to help you repay your dues while facing financial strain.

Check CIBIL Score

Monitoring your CIBIL score is an undermined practice to stay on top of your credit game. Make it a habit to check CIBIL score every 30 to 45 days. You can easily check your latest CIBIL score for free on the Poonawalla Fincorp website. Check for DPDs in CIBIL report, unsolicited loan accounts or SMA statuses in your credit report. Raise a dispute on the official CIBIL website in case of a discrepancy. 

To Conclude

The Reserve Bank of India introduced the SMA classification system to flag overdue accounts as Special Mention Accounts (SMAs). Lenders use the SMA classification system to detect overdue loan accounts with potential to turn into a Non-Performing Asset (NPA). Having an SMA status in your loan/credit card accounts has an impending impact on your credit score and can lead to rejection of loan and credit card applications. This is why it is important to make timely repayments and borrow responsibly. In addition, if you have an SMA status in your credit report, clear all dues as fast as possible and make it a habit to make timely repayments for all future loans.

Frequently Asked Questions

What is SMA in CIBIL report?
An SMA status in CIBIL report shows that you have missed payment due date. Depending on the number of days past due (DPD), your SMA status can change from SMA-0, SMA-1 or SMA-2. 

Does SMA affect CIBIL score?
Yes. Any missed payment affects your CIBIL score adversely and must be addressed immediately to prevent further impact. 

How can I remove SMA from CIBIL score?
The only way to remove SMA from CIBIL report is to clear all overdue payments immediately. An unattended SMA status in your CIBIL report can easily lead your account to be classified as a Non-Performing Asset (NPA) leading to aggravated impact on your CIBIL score and rejection of future loan applications.