RBI proposes 7-year cap on holding non-financial assets
May 05, 2026
RBI's proposed framework will apply only to assets against exposures that have been classified as non-performing assets (NPAs) and for which other recovery options have been explored and found to be unviable.
The Reserve Bank of India (RBI) on Tuesday said lenders may classify collateral as specified non-financial assets (SNFAs) only when all other recovery options have been exhausted and hold them for up to seven years.
“Regulated entities may, as part of a recovery strategy, acquire ownership of an immovable asset furnished as collateral security,” the central bank said in draft directions on the treatment of SNFAs acquired by banks, adding that a controlled and timely disposal of such assets may enable the lender to maximize net recoveries “while ensuring transparency and prudence in the recovery process”.
The regulator has sought comments and feedback on the proposals by 26 May 2026.
RBI directions
The proposed framework will apply only to assets against exposures that have been classified as non-performing assets (NPAs) and for which other recovery options, such as legal or contractual remedies, have been explored and found to be unviable.
“Such assets, almost exclusively real estate and non-banking assets, continue to represent a substantial portion of the collateral pool underlying bank exposures in India,” said Amey Pathak, partner (head-banking), Cyril Amarchand Mangaldas.
Such assets may be acquired “in lieu of full or partial extinguishment of their claims against the borrower”, RBI said, adding that these assets will thereafter not be included under NPAs, but instead be disclosed under the relevant accounting heads in the balance sheet.
The central bank has proposed a maximum holding period of seven years in order to ensure “timely disposal of such SNFAs”. Further, to mitigate any "moral hazard", lenders have been barred from selling the SNFA back to the borrower or any related party, even if the asset has ceased to be an SNFA and is classified for the bank's own use.
"Conceptually, this mirrors Insolvency and Bankruptcy Code's (IBC) Section 29A policy concern that defaulting promoters or connected persons should not regain assets through the back door. That said, an absolute bar may depress price discovery where the borrower is the highest-value user; therefore, safeguards such as full repayment, cooling-off, or court/RBI-supervised exceptions may be debated," said Rohit Jain, managing partner, Singhania & Co.
Pathek said the seven-year outer limit for disposal is both "pragmatic and commercially sensible", as it affords banks essential breathing room to avoid forced fire sales in inherently illiquid real estate markets.
“Given the protracted timelines that characterise resolutions under the IBC, these directions offer regulated entities a structured, parallel route to take direct control of security and resolve stressed exposures outside the formal insolvency framework, while preserving strict valuation, provisioning and disclosure discipline," he said.
In case of failure to dispose of an SNFA within the maximum period or before the carrying value of the asset becomes zero, the SNFA shall be deemed as being employed for the lender’s own use and will stop being classified as an SNFA. Instead, it will need to be recorded under the lender’s ‘fixed assets’ or other relevant accounting head, effective from the date that it is put into use.
RBI clarified that an asset will be deemed to have been acquired only if the title of the asset is transferred in the name of the bank or NBFC, and where the lender is in a clear position to deal with the asset on its own. Moreover, the acquisition will need to result in proportionate extinguishment of the exposure in lieu of which the SNFA is being acquired.
Banks will be required to periodically disclose the SNFAs they hold on their balance sheets. In cases involving only partial extinguishment of claims, the residual exposure must be treated as restructured.
RBI has proposed that banks record and carry SNFAs at the lower of the Net Book Value (NBV) of the extinguished exposure or the distress sale value, which can be revised to the lower of the last available distress value of the revised NBV at the time of each subsequent reporting date. This valuation will be net of notional provisions, assuming the exposure had remained on the banks' books.
“Post-acquisition, SNFA shall be revalued at least once every two years on a distress sale basis, duly factoring in the reasons for failure to dispose of the asset earlier. Valuation gains, if any, shall be ignored and any diminution in value shall be recognized in profit and loss statement immediately,” it said.
Banks and NBFCs will be required to put in place policies for the acquisition and disposal of SNFAs, as well as to define the limit on SNFAs as a share of total assets, eligibility criteria, a delegation matrix, recovery efforts to be explored before acquisition, and the maximum period for disposal. They will also need to demonstrate efforts to dispose of the SNFA at the earliest through a public auction.
“Regulated entities may, as part of a recovery strategy, acquire ownership of an immovable asset furnished as collateral security,” the central bank said in draft directions on the treatment of SNFAs acquired by banks, adding that a controlled and timely disposal of such assets may enable the lender to maximize net recoveries “while ensuring transparency and prudence in the recovery process”.
The regulator has sought comments and feedback on the proposals by 26 May 2026.
RBI directions
The proposed framework will apply only to assets against exposures that have been classified as non-performing assets (NPAs) and for which other recovery options, such as legal or contractual remedies, have been explored and found to be unviable.
“Such assets, almost exclusively real estate and non-banking assets, continue to represent a substantial portion of the collateral pool underlying bank exposures in India,” said Amey Pathak, partner (head-banking), Cyril Amarchand Mangaldas.
Such assets may be acquired “in lieu of full or partial extinguishment of their claims against the borrower”, RBI said, adding that these assets will thereafter not be included under NPAs, but instead be disclosed under the relevant accounting heads in the balance sheet.
The central bank has proposed a maximum holding period of seven years in order to ensure “timely disposal of such SNFAs”. Further, to mitigate any "moral hazard", lenders have been barred from selling the SNFA back to the borrower or any related party, even if the asset has ceased to be an SNFA and is classified for the bank's own use.
"Conceptually, this mirrors Insolvency and Bankruptcy Code's (IBC) Section 29A policy concern that defaulting promoters or connected persons should not regain assets through the back door. That said, an absolute bar may depress price discovery where the borrower is the highest-value user; therefore, safeguards such as full repayment, cooling-off, or court/RBI-supervised exceptions may be debated," said Rohit Jain, managing partner, Singhania & Co.
Pathek said the seven-year outer limit for disposal is both "pragmatic and commercially sensible", as it affords banks essential breathing room to avoid forced fire sales in inherently illiquid real estate markets.
“Given the protracted timelines that characterise resolutions under the IBC, these directions offer regulated entities a structured, parallel route to take direct control of security and resolve stressed exposures outside the formal insolvency framework, while preserving strict valuation, provisioning and disclosure discipline," he said.
In case of failure to dispose of an SNFA within the maximum period or before the carrying value of the asset becomes zero, the SNFA shall be deemed as being employed for the lender’s own use and will stop being classified as an SNFA. Instead, it will need to be recorded under the lender’s ‘fixed assets’ or other relevant accounting head, effective from the date that it is put into use.
RBI clarified that an asset will be deemed to have been acquired only if the title of the asset is transferred in the name of the bank or NBFC, and where the lender is in a clear position to deal with the asset on its own. Moreover, the acquisition will need to result in proportionate extinguishment of the exposure in lieu of which the SNFA is being acquired.
Banks will be required to periodically disclose the SNFAs they hold on their balance sheets. In cases involving only partial extinguishment of claims, the residual exposure must be treated as restructured.
RBI has proposed that banks record and carry SNFAs at the lower of the Net Book Value (NBV) of the extinguished exposure or the distress sale value, which can be revised to the lower of the last available distress value of the revised NBV at the time of each subsequent reporting date. This valuation will be net of notional provisions, assuming the exposure had remained on the banks' books.
“Post-acquisition, SNFA shall be revalued at least once every two years on a distress sale basis, duly factoring in the reasons for failure to dispose of the asset earlier. Valuation gains, if any, shall be ignored and any diminution in value shall be recognized in profit and loss statement immediately,” it said.
Banks and NBFCs will be required to put in place policies for the acquisition and disposal of SNFAs, as well as to define the limit on SNFAs as a share of total assets, eligibility criteria, a delegation matrix, recovery efforts to be explored before acquisition, and the maximum period for disposal. They will also need to demonstrate efforts to dispose of the SNFA at the earliest through a public auction.