Daijiworld Media Network - Mumbai

Mumbai, Jul 16: The Reserve Bank of India (RBI) on Thursday directed banks to dispose of immovable assets acquired against bad loans within a maximum period of seven years through public auctions conducted in accordance with the principles laid down under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

The directive forms part of a revised prudential framework governing specified non-financial assets (SNFAs), which are immovable assets acquired by banks in full or partial settlement of claims on defaulting borrowers. The amended directions will come into effect from October 1, 2026.

"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 RBI said.

The central bank noted that banks do not ordinarily deal in immovable assets as part of their core business, except when such properties are acquired in satisfaction of claims against borrowers.

Under the revised framework, banks may acquire SNFAs only where their exposure to the borrower has been classified as a non-performing asset (NPA). Acquisition will be permitted only after the legal title of the property has been transferred to the bank, enabling it to independently deal with the asset.

The RBI said acquisition of an SNFA may be undertaken against full or partial extinguishment of the bank's exposure on a non-recourse basis. Where only part of the exposure is extinguished, the remaining amount will be treated as a restructured loan and will attract the prudential norms applicable to restructured accounts.

Banks have been directed to incorporate provisions relating to the acquisition and disposal of SNFAs in their board-approved policies. These policies must specify limits on SNFAs as a proportion of total assets, eligibility criteria, delegation of powers, recovery measures to be explored before acquisition and a maximum disposal period of 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 of September 30, 2026, classified as "legacy SNFAs", compliance with the revised norms must be achieved by September 30, 2027.

On valuation, the RBI directed that SNFAs should be recorded 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 has also prohibited banks from selling such assets back to the original borrower or related parties as defined under the Insolvency and Bankruptcy Code, 2016.

If an SNFA is subsequently put to the bank's own use, it will no longer be classified as an SNFA and will instead be recorded as a fixed asset or under another appropriate accounting category.

The RBI clarified that SNFAs will not form part of gross NPAs, net NPAs, stressed exposures or the provisioning coverage ratio. Instead, they will be disclosed separately in banks' balance sheets under the accounting head "non-banking assets acquired in satisfaction of claims".