RBI bars banks from selling acquired stressed assets back to defaulters
Mumbai, July 16
The Reserve Bank of India has issued final prudential norms for banks, small finance banks and non-banking financial companies, barring them from selling specified non-financial assets acquired during the resolution of stressed loans back to the defaulting borrower or its related parties.
The amendments have been issued under the RBI's Resolution of Stressed Assets Directions 2026 for commercial banks, small finance banks and NBFCs.
The new norms will come into effect from October 1, 2026.
The RBI said, "A SNFA shall not be sold back to the borrower or its related parties. Related parties shall have the same meaning as defined in the Insolvency and Bankruptcy Code, 2016."
SNFAs can be acquired only in the exceptional case where the lender's exposure to a borrower has been classified as a non-performing asset, the directions said.
Under the amended directions, an SNFA refers to an immovable asset acquired by a lender in full or partial satisfaction of its claims on a borrower.
Related parties will have the same meaning as defined under the Insolvency and Bankruptcy Code, 2016.
The restriction will continue even if the asset later ceases to be classified as an SNFA.
The RBI said lenders generally do not transact in immovable assets as part of their core business, except when such assets are acquired in satisfaction of claims on borrowers.
The new norms provide clarity on the prudential treatment of such assets.
Banks and NBFCs will have to dispose of "specified non-financial assets" (SNFAs), including non-banking assets (NBAs), within a maximum period of seven years acquired from a borrower, whose account has been classified as non-performing asset (NPA).
The directions also said that post-acquisition, SNFA shall be revalued at least once every two years on distress sale basis, duly factoring in the reasons for failure to dispose of the asset earlier.
Valuation gains, if any, shall be ignored and any diminution in value shall be recognised in profit and loss statement immediately.
The acquisition may take place against full or partial extinguishment of the outstanding loan on a non-recourse basis.
In cases of partial extinguishment, the remaining exposure will be treated as a restructured loan and attract the applicable prudential norms.
The RBI has also directed banks, SFBs and NBFCs to frame board-approved policies covering acquisition and disposal of SNFAs. These policies should specify limits on such assets as a share of total assets, eligibility criteria, delegation of powers, recovery efforts before acquisition and a maximum disposal period of seven years.
The regulator said SNFAs must be recorded in the balance sheet at the lower of the net book value of the extinguished exposure or the distress sale value determined by at least two independent external valuers.
Lenders have also been asked to make all efforts to dispose of these assets through public auctions following the principles laid down under the SARFAESI Act, 2002.
The RBI said that legacy SNFAs outstanding as on September 30, 2026, must comply with the new norms by September 30, 2027.
The directions also lay down separate disclosure requirements for these assets.
SNFAs will not form part of Gross NPA, Net NPA, stressed exposures or provisioning coverage ratio and will instead be disclosed under relevant accounting heads in the balance sheets of banks, small finance banks and NBFCs.
These could be categorised as 'non-banking assets acquired in satisfaction of claims' or 'Specified Non-Financial Assets' or 'Other Assets', in accordance to the applicable regulations and accounting standards.
— IANS
Reader Comments
Great move by RBI! These assets were being treated like a revolving door for defaulters. But I'm skeptical—banks will still find ways to circumvent this. Need strong monitoring by RBI. Also, public auctions through SARFAESI are still riddled with procedural delays. 😤
As an investment analyst, I see this as a much-needed regulatory tightening. The previous practice let defaulters repurchase assets at knockdown prices, essentially rewarding bad behavior. The seven-year timeline and biannual revaluation on distress sale basis are sensible safeguards. However, smaller NBFCs may struggle to comply with the board-approved policy requirement.
One positive step among many needed banking reforms! But let's not forget—the real issue is poor loan appraisal by banks in the first place. Why not hold loan officers accountable for lending to defaulters? Also, 'related parties' definition needs to include shell companies and benami holdings, which are still a grey area. 🙏
This is a sensible regulation to stop asset stripping by defaulters. But as someone who follows Indian banking closely, the mandatory revaluation every two years on 'distress sale basis' is concerning—it could force banks to book artificial losses even on assets that might have recovered value. Should have a provision for holding if economic conditions improve.
Smart regulation, but practical challenges remain. Banks lack the expertise to manage and sell physical assets quickly—they're not real estate agents! The next logical step should be setting up a centralized asset reconstruction agency to handle these SNFAs efficiently. Also, why exclude related party transactions only? What about asset sales to associates at arm's length? Loophole
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