Recognise stress early
A late instalment or a persistent drawing power deficit is a reason to check liquidity and contact the lender. This guide covers commercial banks under the cited RBI directions. Check the rules for a different type of lender or facility. An SMA label is an early-warning classification. It does not by itself determine whether a bank will freeze a facility, restructure the debt or start legal enforcement.
SMA and NPA triggers
For the general commercial bank SMA directions, ordinary overdue loan accounts are tracked from the applicable due date and classified at day-end. For revolving cash credit (CC) and overdraft (OD), the separate table measures continuous excess over the lower of the sanctioned limit or drawing power (DP). Read the special MSME framework where it applies; the general resolution chapters contain an exclusion for the revival and rehabilitation of MSMEs covered by that framework.
| Category | Amount wholly or partly overdue under the general SMA table | Revolving CC/OD: continuous excess over lower of limit or DP under that table |
|---|---|---|
| SMA-0 | Up to 30 days overdue | No separate SMA-0 row for this revolving-excess test |
| SMA-1 | More than 30, up to 60 days | More than 30, up to 60 days |
| SMA-2 | More than 60, up to 90 days | More than 60, up to 90 days, subject to the separate NPA rule |
| NPA | For a term loan, interest or a principal instalment overdue for more than 90 days under the IRAC rule | CC/OD is NPA when it becomes out of order under the IRAC definition, which can be satisfied at 90 days |
A CC/OD is out of order if its balance remains continuously above the relevant limit or DP for 90 days, or if, despite the balance being below the limit or DP, there are no credits for 90 continuous days or credits during the previous 90 days are insufficient to cover interest debited in that period. Include the day being assessed in the 90-day window. Confirm the bank’s applied balances, value dates and qualifying credits. For example, ₹1.80 lakh of qualifying credits against ₹2.40 lakh interest is a ₹0.60 lakh shortfall, even when ₹85 lakh is outstanding against a ₹1 crore limit and within DP.
What CRILC reporting means
Under the general resolution directions, a bank reports credit information, including SMA classification, monthly to the Central Repository of Information on Large Credits (CRILC) for borrowers with aggregate exposure of ₹5 crore or more with that bank. It also reports instances of default weekly for covered borrowers, by Friday close of business or the preceding working day if Friday is a holiday. The weekly rule is not limited to SMA-2. Check the applicable reporting framework and cross-default terms. A report does not automatically freeze a different lender’s facilities.
What a restructuring can change
The RBI’s 2016 revival and rehabilitation framework covers eligible MSMEs with loan limits up to ₹25 crore, including consortium and multiple-bank arrangements. Its Corrective Action Plan (CAP) can involve rectification, restructuring or recovery. Its own early-warning table includes SMA-0 for incipient stress even where payment is not more than 30 days overdue. For covered SMA-2 accounts with aggregate loan limits above ₹10 lakh, referral to the committee is mandatory; for limits up to ₹10 lakh the designated branch official examines the CAP, with committee concurrence required for the branch’s recovery option. An eligible borrower may apply proactively under the circular. For cases outside that framework, assess the relevant general resolution directions and applicable conditions. A proposal or signed agreement before day 90 does not ensure standard classification. Under the general prudential rule, restructuring a standard asset ordinarily causes a downgrade to substandard NPA unless a specific applicable exception says otherwise. The MSME revival circular itself refers to the applicable asset classification and provisioning norms.
- Rescheduling and a principal moratorium: Model a different tenor or temporary principal deferral only on approved terms. Check when interest is payable and what changes in classification, cost and security.
- Funded Interest Term Loan (FITL): Converts agreed unpaid interest into a separate debt balance to be serviced on approved terms. It is not interest forgiveness or immediate cash collection.
- Working Capital Term Loan (WCTL): Converts an agreed part of a working capital balance into scheduled term debt. Model the remaining line, drawing power and financing gap alongside it.
- New money and promoter support: Document the actual funding source, security, subordination and conditions. There is no universal promoter contribution percentage for these examples.
- Pre-packaged insolvency: A separate formal process under Chapter III-A of the Insolvency and Bankruptcy Code, subject to eligibility and approvals under the law in force. It is not a bank restructuring product and does not confer blanket promoter immunity.
Four steps when cash is tight
- Reconcile lender statements and identify overdue amounts, actual drawing power and the next payment dates. Build a weekly cash forecast and identify lawful actions to improve collections and preserve operating cash.
- Contact the lender promptly. Explain what caused the shortfall and support it with orders, customer correspondence and a documented cash plan. Supply verifiable evidence of MSME status where relevant.
- Prepare a viable resolution proposal with a repayment model, downside tests, sponsor funds and any requested techno-economic viability or Credit Monitoring Arrangement data.
- Confirm approvals, documentation, actual implementation and resulting classification with the bank. Continue monitoring cash and account position while the proposal is pending.
Seven worked cases
All cases are hypothetical. A lender’s actual response depends on the facility, applicable law and verified facts.
1. Cash credit within limit but short on credits
A ₹2 crore cash credit facility is used to ₹1.85 crore and has adequate drawing power. The 90-day window ending 31 December 2026 starts on 3 October; the full October–December calendar quarter contains 92 days. Assume ₹5.40 lakh of interest and ₹3.80 lakh of qualifying credits for the 90-day window before a further deposit. The shortfall is ₹1.60 lakh despite ₹15 lakh of nominal limit headroom. If an additional ₹1.80 lakh deposit on 30 December qualifies for the test, total credits are ₹5.60 lakh, or ₹0.20 lakh above interest. The interest-coverage test for this window would then not show a shortfall; this does not cure a separate out-of-order trigger or an existing NPA by itself.
2. Model separate WCTL and FITL balances
An auto parts manufacturer has ₹6 crore cash credit and a ₹4 crore term facility. A customer payment is delayed 120 days, and cash credit stays ₹1.20 crore above DP for 65 days. Under the general revolving-excess test, 65 days falls in the SMA-2 band if no NPA trigger applies. Assume the lender agrees to convert ₹1.20 crore to a WCTL over four years and ₹35 lakh of separate unpaid interest to an FITL with a one-year payment moratorium on stated terms. Under 48 monthly equal principal instalments and nominal annual interest of 9.5% on opening monthly principal, the first WCTL principal payment is ₹2.50 lakh and interest ₹0.95 lakh, for ₹3.45 lakh total. If ₹2.40 crore remains on the original term loan, 30 principal instalments at ₹8 lakh can be compared with 54 instalments after a 24-month extension: 53 of ₹4.50 lakh and a final ₹1.50 lakh. Add interest separately. Model the ₹20 lakh assumed sponsor equity contribution and make sure no amount is included in both the WCTL and FITL. Approval or execution on day 84 would not establish standard status.
3. A default involving multiple banks
A borrower has an ₹8 crore loan with Bank A and a ₹15 crore facility with Bank B. A ₹12 lakh instalment at Bank A remains overdue for 62 days, which falls in the general term-loan SMA-2 band before any NPA trigger. For the general CRILC rule, assess qualifying exposure at each bank and the weekly reporting of default. Bank B reviews its own facility terms and exposures. Whether its LC headroom stays available is a separate decision, and outstanding LCs have their own terms.
4. A principal deferral during export disruption
An exporter’s transit time rises from 25 to 75 days: three times as long, a 50-day increase. An instalment is overdue for 45 days, within the general SMA-1 band. The exporter requests an 18-month principal deferral, supported by shipment evidence and collection forecasts. Test the proposed interest payments and the increase in total financing cost. The lender must agree and apply the governing classification rules.
5. A ₹30 crore consortium exposure
Three lenders are exposed to a borrower with ₹30 crore of loan limits. That is ₹5 crore above the ₹25 crore ceiling of the cited special MSME revival framework. Check the applicable general stressed asset directions, exposure thresholds and agreements. The lenders may assess a common plan, including security and payment sharing. Do not assume an automatic Joint Lenders’ Forum, a binding plan triggered by SMA-2 or a 30-day clock from that classification alone.
6. A rehabilitation request before potential enforcement
An MSME with an ₹80 lakh overdraft applies on 15 March, 16 calendar days before a possible 31 March classification date. Submit verifiable evidence of MSME status and a supported application under the applicable framework. The Supreme Court’s Pro Knits decision explains why that evidence and timely invocation matter. The application itself is not a blanket stay or guarantee of sanction. Where section 13(2) of SARFAESI applies, the secured creditor’s written demand ordinarily follows default and NPA classification, subject to statutory exceptions, and allows 60 days from the notice date. Measures under section 13(4) are a separate step subject to statutory conditions.
7. Rebuild the cash forecast under revised terms
An engineering firm is asked to deliver a restructuring pack in seven days and models a four-year WCTL, an FITL and revised debt service coverage. Reconcile the pre- and post-restructuring balances, model interest, cash tax and working capital, and test liquidity after the proposed payment changes. The seven days and four years are assumptions, not statutory deadlines. A finance platform can support modelling; the lender decides whether to approve.
Frequently asked questions
What is the difference between SMA-0, SMA-1 and SMA-2?
They are early overdue bands under the general RBI framework. Revolving excess has its own table and no separate SMA-0 row for that test. Use the appropriate trigger for the facility.
Can cash credit become NPA even within the sanctioned limit?
Yes. Drawing power may be lower, or one of the 90-day no-credit or insufficient-credit tests can apply even when the balance is below both.
Does CRILC trigger a cross-bank freeze?
No automatic freeze follows from a report. Check the relevant lender’s risk decision, facility terms, cross-default provisions and applicable law.
What is an FITL?
It is a term balance for agreed unpaid interest, payable on the approved schedule. Terms vary by resolution plan.
Can promoters retain control?
Out-of-court restructuring does not automatically displace management, but the agreed plan can change ownership, control or governance. An insolvency process follows its own rules.
How can a financial model help?
Track daily balances and bank statements, reconcile opening and closing debt, and test revised debt service against forecast cash under several scenarios.
Sources
- RBI Commercial Banks – Resolution of Stressed Assets Directions, 2025
- RBI Commercial Banks – Income Recognition, Asset Classification and Provisioning Directions, 2025
- RBI circular of 17 March 2016: Framework for Revival and Rehabilitation of MSMEs
- Supreme Court: M/s Pro Knits v. The Board of Directors of Canara Bank, 2024 INSC 565
- India Code: SARFAESI Act, 2002, section 13
- India Code: Insolvency and Bankruptcy Code, 2016, Chapter III-A