The Reserve Bank of India has tightened the rules governing immovable properties acquired by banks while recovering bad loans, directing lenders to dispose of such assets within seven years through transparent public auctions.
The revised prudential framework, effective from October 1, 2026, aims to ensure banks do not hold real estate for prolonged periods and reinforces that property ownership is not part of their core banking business.
Banks must dispose of immovable assets acquired against bad loans within a maximum of seven years.
Disposal should preferably take place at the earliest through public auctions.
Auctions must follow the principles laid down under the SARFAESI Act, 2002.
Banks cannot sell these properties back to the original borrower or related parties as defined under the Insolvency and Bankruptcy Code (IBC), 2016.
The RBI has classified such recovered immovable properties as Specified Non-Financial Assets (SNFAs).
These are properties acquired by banks in full or partial settlement of loans that have turned non-performing assets (NPAs). The central bank reiterated that banks generally do not engage in buying or holding immovable assets except for loan recovery.
An SNFA will be recognised only after legal ownership of the property has been transferred to the bank.
The RBI has prescribed several safeguards for banks while acquiring such properties:
SNFAs can be acquired only after the borrower's loan has been classified as an NPA.
Partial acquisition of assets will leave the remaining loan classified as a restructured account and subject to existing prudential norms.
Properties must be valued at the lower of:
the net book value of the extinguished loan, or
the distress sale value assessed independently by at least two external valuers.
If a bank starts using an SNFA for its own operations, it will cease to be classified as an SNFA and will instead be recorded as a fixed asset or another appropriate accounting category.
The revised framework requires every bank to put in place a board-approved policy covering the acquisition and disposal of SNFAs.
The policy should include:
Limits on SNFAs as a proportion of total assets.
Eligibility criteria for acquisition.
Delegation of approval powers.
Recovery options to be explored before acquiring the asset.
A disposal timeline not exceeding seven years.
The RBI clarified that SNFAs will not be counted as:
Gross NPAs
Net NPAs
Stressed exposures
Provisioning Coverage Ratio (PCR)
Instead, they will be disclosed separately in banks' balance sheets under the head Non-banking assets acquired in satisfaction of claims.
The framework applies to all immovable assets acquired through bilateral settlements as well as under the SARFAESI Act.
Banks holding such assets before September 30, 2026, have until September 30, 2027, to align with the new rules.