BT Explainer | When banks can seize property from loan defaulters: RBI's new rules decoded

The Reserve Bank of India (RBI) has introduced a comprehensive framework governing how banks should acquire, value, manage and dispose of immovable assets taken over from defaulting borrowers. The new norms are aimed at ensuring that banks follow a uniform and transparent process while preventing them from holding such assets indefinitely.

The amended directions, which will come into force from October 1, 2026, introduce a new chapter on Specified Non-Financial Assets (SNFAs) under the RBI's Resolution of Stressed Assets Directions, 2025. The framework also provides a one-year transition period for assets already on banks' books.

Why has RBI issued fresh norms?

Banks occasionally acquire immovable assets when borrowers fail to repay loans and the assets are accepted in full or partial settlement of outstanding dues. Since banks are not in the business of owning or managing real estate, the RBI said it was necessary to prescribe prudential norms for such assets.

The regulator noted that the framework provides clarity on the treatment of specified non-financial assets, including non-banking assets acquired by banks through various recovery mechanisms.

What are Specified Non-Financial Assets?

Under the new rules, an SNFA refers to an immovable asset acquired by a bank in full or part satisfaction of its claims on a borrower. The definition also includes non-banking assets acquired under the Banking Regulation Act, 1949.

The framework covers assets acquired through bilateral settlements as well as under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

However, an asset will be treated as an SNFA only after the legal title has been transferred to the bank and the lender is in a position to deal with it independently. The RBI has also clarified that such assets can be acquired only where the borrower's exposure has already been classified as a non-performing asset (NPA).

How should banks value these assets?

The RBI has prescribed conservative valuation principles to ensure banks do not overstate the value of acquired properties.

At the time of acquisition, an SNFA must be recorded in the balance sheet at the lower of the net book value (NBV) of the extinguished loan or the distress sale value, which must be determined by at least two independent external valuers.

Where only part of the outstanding loan is extinguished through acquisition of an asset, the remaining exposure will be treated as a restructured loan and will attract the prudential treatment applicable to restructuring. The value of the SNFA must also be updated at every reporting date based on the prescribed methodology.

What happens after acquisition?

The new framework makes it clear that banks should not retain these assets longer than necessary.

Every bank must have a policy covering acquisition and disposal of SNFAs, including eligibility criteria, delegation of powers, recovery efforts before acquisition, limits on such assets as a share of total assets and a maximum disposal period of seven years.

Banks must also make all efforts to dispose of the assets through public auction, following the auction principles laid down under the SARFAESI Act. Importantly, the RBI has prohibited banks from selling these assets back to the defaulting borrower or related parties, even if the property later ceases to be classified as an SNFA.

New disclosure requirements

The RBI has also strengthened reporting and disclosure norms.

SNFAs will not be included in Gross NPA, Net NPA, stressed exposure or provisioning coverage ratio calculations. Instead, they will be disclosed separately in banks' balance sheets as "non-banking assets acquired in satisfaction of claims." Banks will also have to report detailed information on these assets through the RBI's CIMS portal.

For legacy SNFAs that remain on banks' books as of September 30, 2026, compliance with the new framework must be achieved by September 30, 2027.

The new norms are expected to bring greater consistency, transparency and prudential discipline to the way banks deal with properties acquired from loan defaulters. By setting clear rules for valuation, accounting, disposal and disclosure, the RBI aims to ensure that such assets remain a temporary recovery tool rather than becoming a permanent part of banks' balance sheets.