RBI bars banks, NBFCs from selling acquired assets back to defaulting borrowers, related parties

The Reserve Bank of India (RBI) has issued final prudential norms for banks, small finance banks (SFBs), and non-banking financial companies (NBFCs), strictly banning them from selling specified non-financial assets (SNFAs) acquired during the resolution of stressed loans back to the defaulting borrowers or their related entities.

Introduced as amendments under the Resolution of Stressed Assets Directions, 2025, the central bank's updated framework is scheduled to take effect on October 1, 2026.

Under the revised guidelines, an SNFA is defined as any immovable property a lender takes over to fully or partially satisfy its claims against a borrower. For banks, the definition also includes non-banking assets (NBAs) acquired under the provisions of the Banking Regulation Act, 1949.

"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,” the RBI said.

It added that related parties will have the same meaning as defined under the Insolvency and Bankruptcy Code, 2016. The banking regulator emphasized that this sweeping restriction will remain firmly in place even if the immovable assets subsequently loses its SNFA classification.

The central bank noted that while managing immovable assets fall outside the core operations of traditional lending business, clear guidelines were necessary to establish a uniform prudential treatment for instances where such assets are inevitably seized to settle unrecovered dues.

According to the newly minted framework, SNFAs can be acquired by financial institutions only when a borrower's account has officially deteriorated into a non-performing asset (NPA).

These asset transfers can be executed to fully or partially wipe out the outstanding loan on a non-recourse basis. The RBI clarified that in instances where the loan is only partially extinguished; the remaining exposure will be treated as a restructured loan and attract the applicable prudential norms.

Furthermore, the central bank has directed banks, SFBs, and NBFCs to implement comprehensive, board-approved corporate policies to govern the acquisition and disposal of SNFAs. These internal policies must clearly outline maximum exposure caps for SNFAs as a percentage of total assets, strict eligibility metrics, clear operational mandates, documented recovery attempts prior to seizure, and a rigid disposal deadline capped at seven years.

The regulator specified that SNFAs must be booked on 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 further said that legacy SNFAs outstanding as on September 30, 2026 must comply with the new norms by September 30, 2027.

The directions also prescribe 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 separate accounting heads in the balance sheets of banks, small finance banks and NBFCs.