To stem accretion of bad loans, Union Bank of India is putting in place a technology-based monitoring mechanism to identify stress in a loan almost 60 days before it gets categorised as a first-stage special mention account (SMA).

This mechanism will give the bank more time for follow-up and resolution even before a loan gets categorised as SMA-0 (whereby an account shows signs of incipient stress), according to MD and CEO, Rajkiran Rai G.

Assets with potential weaknesses (which deserve close attention and can be resolved through timely remedial action) are categorised as SMAs. When the principal or interest payment is not overdue for more than 30 days but the account shows signs of incipient stress, it is categorised as ‘SMA-0’. Accounts in SMA-1 and SMA-2 are those where the principal or interest payment are overdue between 31-60 days and 61-90 days, respectively.

“For credit we have put in place all the systems that will ensure enhanced due diligence. So, I am very sure, our credit quality will gradually move up.

“Our focus now is more on the monitoring side. We are building a technology-based platform for monitoring,” explained Rai.

The emphasis of the public sector bank is to identifystress in loans much before default. Hence, it has built a model around that.

“Generally, our monitoring used to start from SMA 0 (first signs of default). From this point, we have 90 days before an account becomes a non-performing asset (NPA).

“But now, we have developed a system whereby we detect stress in an account 60 days before first default (SMA-0). We call it early warning,” said the Union Bank chief.

The Mumbai-headquartered public sector bank, which recorded a net profit of ₹139 crore in the second quarter against a net loss of ₹1,531 crore in the year-ago period, reported lower slippages aggregating ₹2,667 crore in the second quarter against ₹4,652 crore in the preceding quarter.

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