RBI Bars Banks From Selling Recovered Immovable Properties Back To Defaulting Borrowers

Mumbai, July 16: The Reserve Bank on Thursday said a bank that has acquired an immovable asset in an exceptional case as part of a recovery process cannot sell it back to the borrower or related parties.

Regulated entities (banks), in the normal course, are not expected to come into possession of non-financial assets in lieu of their regular lending operations.

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However, in exceptional cases, where the exposures become non-performing and legal or contractual remedies have been invoked, regulated entities may, as part of a recovery strategy, acquire ownership of an immovable asset furnished as collateral security.

RBI Issues Prudential Norms

In order to provide clarity on the prudential treatment of such specified non-financial assets, including non-banking assets, acquired by a bank through various mechanisms, the RBI has issued prudential norms.

"A bank shall dispose of the specified non-financial asset within the maximum period of disposal as envisaged in the bank's policy, subject to a maximum period of seven years," the central bank said, adding that the lender should make all efforts to dispose of the specified non-financial asset at the earliest through a public auction.

Earlier in May, the Reserve Bank of India (RBI) had issued draft norms in this regard for stakeholder feedback.

Borrower Buyback Ruled Out

One of the pieces of feedback was that borrowers may be allowed to buy back the property.

"This could create moral hazard and dilute credit discipline by allowing defaulting borrowers a preferential opportunity to regain the asset," the RBI said while not agreeing with the suggestion.

On the valuation of such assets, the RBI (Commercial Banks – Resolution of Stressed Assets) Third Amendment Directions, 2026, said that upon acquisition, specified non-financial assets should be recorded in the balance sheet at the lower of the net book value of the extinguished exposure or the distress sale value arrived at by at least two independent external valuers.

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Directions Effective October 1

Further, specified non-financial assets (SNFA) put to the bank's own use should cease to be classified as an SNFA from the date of being put to use and shall be recorded under the accounting head 'fixed assets' or under any other relevant accounting head.

The directions will come into force with effect from October 1, 2026.

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