According to the recent Financial Stability Report (FSR) released by the Reserve Bank of India (RBI), even though India’s gross bad loans are currently at a 10-year low of 3.9%, approximately 10% of retail borrowers are facing difficulties in making their monthly loan payments.
The report highlights that, as of March 31, the total proportion of Special Mention Accounts (SMAs) in the retail advances of public sector banks (PSBs) stood at 9.4%. SMAs categorize loan accounts based on the delay in interest or principal payments. SMA-0 refers to loans where the interest or principal payment is delayed but not overdue by more than 30 days. SMA-1 represents loans with overdue payments between 31 and 60 days, while SMA-2 includes loans with payments overdue between 61 and 90 days.
It is worth noting that loans overdue by more than 90 days are classified as non-performing assets (NPAs) or bad loans. Loan accounts falling under the SMA-1 and SMA-2 categories have a higher likelihood of defaulting.
The RBI report states, “Although the gross non-performing ratio of retail loans at the system level was low at 1.4% as of March 2023, the share of ‘special mention accounts’ was relatively high at 7.4% for scheduled commercial banks (SCBs), and it accounted for a tenth of their retail assets portfolio.”
This data underscores the presence of stress and potential risks within the retail loan segment, despite the overall improvement in the gross bad loans ratio. Monitoring and addressing the situation with regard to the special mention accounts will be crucial in maintaining the stability of India’s financial system.