Dealing with immovable assets acquired as part of recovery: RBI proposes maximum 7-year holding period
May 05, 2026
To mitigate moral hazard, REs shall be prohibited from selling the SNFA back to the borrower or to any related party of the borrower. They will also be required to disclose the stock of SNFAs held by them in their balance sheet
The Reserve Bank of India’s draft guidelines for lenders to deal with immovable assets they acquire as part of a recovery strategy have proposed a maximum holding period of seven years with a view to ensuring timely disposal of such specified non-financial assets (SNFAs).
Further, to mitigate moral hazard, Reguated Entities (REs) shall be prohibited from selling the SNFA back to the borrower or to any related party of the borrower. They will also be required to disclose the stock of SNFAs held by them in their balance sheet.
Regulated entities (REs) include commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks but excluding Payments Banks); co-operative banks; All-India Financial Institutions; and Non-Banking Financial Companies.
The Draft Prudential Norms on Specified Non-financial Assets (SNFA) Directions noted that REs are, in normal course, not expected to come into possession of non-financial assets in lieu of their regular lending operations.
However, in exceptional cases, where the exposures become non-performing and legal or contractual remedies have been invoked, REs may, as part of recovery strategy, acquire ownership of an immovable asset furnished as collateral security.
The central bank emphasised that a controlled and timely disposal of such asset, on an arm’s-length basis, may enable the RE to maximise net recoveries while ensuring transparency and prudence in the recovery process. It inivted comments on the draft guidelines from public / stakeholders by May 26, 2026.
As per the Draft Directions, only exposures classified as non-performing, in respect of which other recovery options have been explored and assessed to be unviable, will be eligible for extinguishment.
REs may acquire SNFAs in lieu of full or partial extinguishment of their claims against the borrower.
In cases involving partial extinguishment of claims, the residual exposure shall be treated as restructured and shall be subject to the applicable prudential requirements.
The SNFAs shall be recorded and carried at the lower of the Net Book Value (NBV) of the extinguished exposure or the distress sale value of the SNFA.
At each subsequent reporting date, the SNFA shall be carried at the lower of last available distress sale value or the revised NBV, which shall be net of notional provisions, had the exposure continued on the books of the RE.
Published on May 5, 2026
Further, to mitigate moral hazard, Reguated Entities (REs) shall be prohibited from selling the SNFA back to the borrower or to any related party of the borrower. They will also be required to disclose the stock of SNFAs held by them in their balance sheet.
Regulated entities (REs) include commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks but excluding Payments Banks); co-operative banks; All-India Financial Institutions; and Non-Banking Financial Companies.
The Draft Prudential Norms on Specified Non-financial Assets (SNFA) Directions noted that REs are, in normal course, not expected to come into possession of non-financial assets in lieu of their regular lending operations.
However, in exceptional cases, where the exposures become non-performing and legal or contractual remedies have been invoked, REs may, as part of recovery strategy, acquire ownership of an immovable asset furnished as collateral security.
The central bank emphasised that a controlled and timely disposal of such asset, on an arm’s-length basis, may enable the RE to maximise net recoveries while ensuring transparency and prudence in the recovery process. It inivted comments on the draft guidelines from public / stakeholders by May 26, 2026.
As per the Draft Directions, only exposures classified as non-performing, in respect of which other recovery options have been explored and assessed to be unviable, will be eligible for extinguishment.
REs may acquire SNFAs in lieu of full or partial extinguishment of their claims against the borrower.
In cases involving partial extinguishment of claims, the residual exposure shall be treated as restructured and shall be subject to the applicable prudential requirements.
The SNFAs shall be recorded and carried at the lower of the Net Book Value (NBV) of the extinguished exposure or the distress sale value of the SNFA.
At each subsequent reporting date, the SNFA shall be carried at the lower of last available distress sale value or the revised NBV, which shall be net of notional provisions, had the exposure continued on the books of the RE.
Published on May 5, 2026