New Delhi: Chief economic adviser V. Anantha Nageswaran on Friday pitched for a review of loan-overdue regulations for micro, small and medium enterprises (MSMEs), calling for aligning them with the cash-flow cycles of these entities rather than adopting a uniform standard.
across sectors have different working capital cycles, he said, suggesting that regulations need to be aligned with this reality.
“The moment you are classified as a Special Mention Account (SMA), you almost end up becoming de facto, if not de jure, a non-performing asset (NPA). That needs to change,” Nageswaran said at an event in New Delhi, organised by Sa-Dhan, a self-regulatory body for microfinance institutions.
“We need to evolve norms consistent with our practices and cash flow patterns rather than adopting a globally uniform pattern,” he added.
Banks typically classify overdue accounts as SMAs before they become non-performing assets (NPAs). Payments delayed by up to 30 days are classified as SMA-0, 31 to 60 days as SMA-1, and 61 to 90 days as SMA-2. If dues remain unpaid for more than 90 days, the account is classified as an NPA. said that for many MSMEs, this early tagging effectively blocks the prospects of further credit.
However, he also stressed the need for microfinance entities to avoid overleveraging their balance sheets.
“From a pure finance perspective, the priority should be savings, insurance and then credit. But the sector has reversed that order,” Nageswaran said. “The priority pyramid is inverted. That is the reason why frequent bouts of crisis occur in the microfinance space.”
According to Sa-Dhan’s Bharat Microfinance Report 2026, asset quality in the microfinance sector showed improvement after a period of deterioration. Portfolio at risk (PAR) of 30-179 days past due declined to 2.34% as of March 2026 from 6.63% a year earlier, while PAR of 90-179 days stood at 1.45%, down from 3.92%.
No one-size-fits-all model for states
Nageswaran also advised against any one-size-fits-all policy to realise the goal of making India a developed nation by 2047.
States must push through serious , promote large-scale skilling of youth, take advantage of various free trade agreements, and pursue different models of success.
For instance, industrialised states can pursue a capital-intensive growth model, while less industrialised states with large populations can opt for a labour-intensive model, and others can choose a multi-model growth path, he said.
A panel under cabinetT.V. Somanathan is currently suggesting that states implement regulations to support growth.
India has remained the world’s fastest-growing major economy since 2021-22. It grew at a higher-than-expected 7.8% in the June quarter, although the rate of expansion is projected to slow in the second quarter of this fiscal year amid a flare-up in the West Asia crisis. Most analysts expect the country to grow 6.8-7% in the current fiscal.