RBI bars banks from selling recovered properties back to defaulting borrowers

Banks and other regulated entities will not be allowed to sell immovable properties acquired from defaulting borrowers back to the same borrowers or their related parties, the Reserve Bank said on Thursday, issuing prudential norms for such assets.

The RBI said the restriction will continue even if the property later ceases to be classified as an specified non-financial assets (SNFAs), immovable properties acquired by regulated entities in full or partial settlement of dues from stressed borrowers.

The norms, which will come into force from October 1, 2026, apply to commercial banks, small finance banks, NBFCs, all-India financial institutions, urban and rural cooperative banks, regional rural banks and local area banks.

"SNFA shall not be sold back to the borrower or its related parties," the central bank said.

The RBI said banks generally do not transact in immovable assets as part of their core business except when such properties are acquired in satisfaction of claims on borrowers.

The new norms seek to provide clarity on the prudential treatment of such assets.

The central bank said lenders may acquire an SNFA only when their exposure to a borrower has been classified as a non-performing asset.

The acquisition can be made against full or partial extinguishment of the outstanding loan on a non-recourse basis.

"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.

The RBI added that lenders should make all efforts to sell these assets through public auctions, following the principles laid down under the SARFAESI Act.

Earlier in May, the RBI had issued draft norms in this regard for stakeholder feedback.

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 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.

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.