The Reserve Bank of India (RBI) has barred banks from selling immovable properties acquired during loan recovery proceedings back to defaulting borrowers or their related parties, saying such a move could weaken credit discipline and encourage wilful defaults.
The central bank clarified that regulated entities are not expected to hold non-financial assets as part of their normal lending activities. However, in exceptional circumstances involving non-performing assets (NPAs), banks may take possession of immovable properties offered as collateral while pursuing recovery measures.
To bring greater clarity to the treatment of such assets, the RBI has issued fresh prudential norms governing specified non-financial assets acquired by banks through recovery, enforcement or other legal mechanisms. Under the new framework, banks must dispose of these assets within the period prescribed in their internal policies, subject to an upper limit of seven years from the date of acquisition. The RBI has directed lenders to make efforts to sell such properties at the earliest, preferably through public auctions.
The regulator said it had received suggestions during consultations on the draft norms issued in May this year seeking permission for borrowers to repurchase the recovered assets. However, the RBI rejected the proposal, stating that allowing defaulting borrowers to regain the same property could create moral hazard and undermine repayment discipline. The guidelines also prescribe valuation norms for such assets. Upon acquisition, the property must be recorded in the bank’s books at the lower of either the net book value of the extinguished loan exposure or the distress sale value determined independently by at least two external valuers.
The RBI further clarified that if a bank decides to use an acquired property for its own operations, the asset will no longer be classified as a specified non-financial asset and will instead be recorded under fixed assets or another appropriate accounting category.
The revised directions, issued under the RBI (Commercial Banks Resolution of Stressed Assets) Third Amendment Directions, 2026, will come into effect from October 1, 2026.
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