RBI caps holding period for immovable assets acquired from bad loans at seven years

Commercial banks will now have to dispose of immovable assets acquired from defaulting borrowers within a maximum of seven years, under new prudential norms issued by the Reserve Bank of India (RBI) to govern the acquisition, valuation and sale of such assets.

The central bank on Thursday notified the Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Third Amendment Directions, 2026, introducing a dedicated framework for Specified Non-Financial Assets (SNFAs) —immovable assets that banks acquire in full or partial satisfaction of their claims on non-performing borrowers.

The RBI said banks do not ordinarily deal in immovable assets as part of their core business and acquire such properties only in exceptional cases during loan recovery. The new framework seeks to bring uniformity and clarity to the prudential treatment of these assets, including non-banking assets acquired under the Banking Regulation Act.

Under the new rules, every bank will have to formulate a board-approved policy governing the acquisition and disposal of SNFAs. The policy must specify limits on such assets as a proportion of total assets, eligibility criteria, delegation of powers, recovery efforts to be undertaken before acquisition, and a disposal timeline not exceeding seven years.

The RBI has also mandated that banks should make all efforts to sell these assets at the earliest through public auctions in line with the principles laid down under the SARFAESI Act, 2002. Further, banks have been prohibited from selling these assets back to the defaulting borrower or related parties, even after the asset ceases to be classified as an SNFA.

The directions clarify that banks can acquire such assets only when the borrower’s exposure has already been classified as a non-performing asset (NPA). The acquisition will be recognised only after the title of the property is transferred to the bank, enabling it to independently deal with the asset.

The norms also lay down a detailed valuation methodology. At the time of acquisition, an SNFA must be recorded at the lower of the net book value of the extinguished loan exposure or the distress sale value determined by at least two independent external valuers. Where only part of the loan is settled through asset acquisition, the remaining exposure will be treated as a restructured loan and will attract the applicable prudential norms.

From a reporting perspective, the RBI has clarified that SNFAs will not form part of Gross NPAs, Net NPAs, stressed assets or provisioning coverage ratio calculations. Instead, they will be shown separately in banks’ balance sheets under the head “non-banking assets acquired in satisfaction of claims.”

As per the norms, an 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. This restriction on sale back to borrower or its related parties shall continue to be adhered to, even in cases where the SNFA has ceased to be an SNFA.

The new norms will come into force from October 1, 2026. Banks holding such assets as of September 30, 2026, will have one year—until September 30, 2027—to align with the revised framework.

Also See: IBBI revises Limited Insolvency Examination syllabus; new pattern effective October 1, 2026