India’s banking system adopts stricter timelines for recognising stressed loans, shifting focus towards faster identification and resolution of overdue accounts under the revised RBI guidelines, potentially reducing delays and errors in asset quality monitoring.
A loan rarely slips into default all at once. In India’s banking system, accounts usually move through a series of warning stages under the Special Mention Account framework before they are tagged as non-performing assets. HDB Financial Services says the Reserve Bank of India’s latest revised norms, tied to a November 2025 circular, set out a tighter timetable: SMA-0 for overdue payments of up to 30 days, SMA-1 for more than 30 days to 60 days and SMA-2 for more than 60 days to 90 days, with classification done as part of the day-end process.
That matters because the older 2021 and 2022 clarification notices described a longer runway for some loans, with several lenders still summarising the framework as SMA-0 up to 30 days, SMA-1 for more than 30 days to 60 days and SMA-2 for more than 60 days to 150 days, before NPA treatment after 150 days. Industry guidance from Axis Finance, Three Wheels United and Shabri Investment reflects that earlier interpretation, which means borrowers and lenders need to check which RBI rule set applies to the product and reporting period in question.
What has not changed is the purpose of the system. The SMA framework is meant to flag stress early, giving banks time to speak with borrowers, review cash flow problems and decide whether an account can be regularised before it deteriorates further. Under HDB Financial Services’ summary of the revised norms, an account can move back to standard status only when the borrower clears the full arrears of interest and principal. That makes early repayment and quick follow-up decisive, not just for the borrower but for the lender’s asset quality and provisioning.
The practical takeaway for credit teams is simple: an overdue instalment is not automatically an NPA, but it is a signal that the account needs attention. Cash credit and overdraft facilities, along with some agricultural advances, are treated under separate rules, so banks cannot apply the same timetable to every product. The broader lesson from the latest guidance is that classification is now more system-driven and more closely tied to the relevant overdue date, which should reduce delays and manual error in monitoring stressed loans.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
