The government's Chief Economic Advisor (CEA), V. Anandha Nageswaran, called for a review of the rules for classifying micro, small, and medium enterprises (MSMEs) as Special Mention Accounts (SMA). He noted that a uniform 90-day delinquency period is not suitable for all MSMEs, as enterprises in different sectors have varying cash flow cycles.
At the Sa-Dhan conference, he stated that once an enterprise is classified as SMA, it effectively, and possibly legally, becomes a Non-Performing Asset (NPA). In his view, this requires changes. He emphasized the need to develop norms that align with real practices and cash flow models, rather than adopting a universal global standard.
Banks classify loan accounts as SMA based on the duration of payment delay: up to 30 days is SMA-0, 31 to 60 days is SMA-1, and 61 to 90 days is SMA-2. If the delay exceeds 90 days, the account is classified as a Non-Performing Asset (NPA).
Nageswaran clarified that Indian MSMEs operate across various industries, each having its own working capital cycles, making the standardized 90-day norm unacceptable for everyone. Furthermore, the CEA pointed out that the microfinance sector must avoid overleveraging its balance sheets.
He noted that from a purely financial perspective, savings and insurance should be prioritized, followed by lending; however, this order is inverted in this sector, which is the cause of frequent crises in the microfinance sphere.
India's microfinance sector experienced a period of significant strain in the 2024–25 fiscal year due to being characterized as overleveraged. Nevertheless, according to the Sa-Dhan Bharat Microfinance Report, the sector has begun showing signs of recovery, showing an 11 percent reduction in the loan portfolio in the 2026 fiscal year. Sa-Dhan is a self-regulatory organization appointed by the Reserve Bank of India (RBI) for the microfinance segment.