The Reserve Bank of India (RBI) on Thursday said banks must dispose of immovable assets acquired against bad loans within seven years through a public auction conducted in accordance with the principles laid down under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.
“A bank shall dispose of the specified non-financial asset (SNFA) within the maximum period of disposal as envisaged in the bank’s policy, subject to a maximum period of seven years. A bank shall make all efforts to dispose of the SNFA at the earliest through a public auction. For the purpose of public auction, a bank shall adhere to the principles of auction enshrined in the SARFAESI Act, 2002,” the central bank said in the amended directions.
The directions are part of a new prudential framework governing SNFAs — immovable assets acquired by banks in full or partial satisfaction of their claims on borrowers. The amended directions will come into force on October 1, 2026.
The RBI said banks generally do not transact in immovable assets as part of their core business operations, except where such assets are acquired in satisfaction of claims on borrowers.
The directions permit acquisition of an SNFA against full or partial extinguishment of a bank’s exposure on a non-recourse basis. Where only part of the exposure is extinguished, the residual exposure will be treated as a restructured loan and attract the prudential treatment applicable to restructured accounts.
The amended directions require banks to incorporate provisions in their board-approved policies governing the acquisition and disposal of SNFAs. The policies must specify, among other things, limits on SNFAs as a share of total assets, eligibility criteria, delegation matrix, recovery efforts to be explored before acquisition, and a maximum disposal period not exceeding seven years.
The framework will apply to all SNFAs, including those acquired through bilateral transactions or under the SARFAESI Act. For assets already held by banks as on September 30, 2026, termed “legacy SNFAs”, compliance with the new directions must be achieved by September 30, 2027.
The RBI said an SNFA would be deemed to have been acquired only after the asset’s title has been transferred to the bank, enabling it to deal with the asset independently. Such assets can be acquired only where the bank’s exposure to the borrower has been classified as a non-performing asset (NPA).
On valuation, the RBI said an SNFA must be recorded on acquisition 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.
The central bank also barred banks from selling such assets back to the borrower or related parties, as defined under the Insolvency and Bankruptcy Code, 2016. If an SNFA is put to the bank’s own use, it will cease to be classified as an SNFA and will instead be recorded as a fixed asset or under another relevant accounting head.
The RBI said SNFAs will not form part of gross NPAs, net NPAs, stressed exposures or the provisioning coverage ratio. Instead, they will be disclosed separately in the balance sheet under the accounting head “non-banking assets acquired in satisfaction of claims”.
