RBI’s New Draft Rules On Bad Loan Collateral: 5 Key Things Borrowers And Banks Should Know
May 06, 2026
Reserve Bank of India draft norms tighten rules on banks taking over collateral, capping asset holding at seven years and mandating stricter disclosure and valu
RBI issues draft norms on banks taking collateral assets for bad loans, sets seven year holding cap, strict valuation, disclosure rules, and bans resale to original borrowers
The Reserve Bank of India has issued draft norms for properties and non-financial assets that banks and other regulated entities (REs) use as collateral when borrowers fail to repay the amount.
The bank released the draft circular on Wednesday, aiming to bring transparency and clarity to the process.
When a loan turns into a bad loan (non-performing asset or NPA) and recovery options fail, banks may take ownership of the pledged property to recover dues.
Among the major proposed guidelines are seven-year cap on holding such assets, mandatory disclosure in balance sheets, and conservative asset valuation and more.
5 Things One Should Know About New Proposed Guidelines:
1. Banks can take over assets only when the loan has already become an NPA and other recovery methods are not working. These assets, called Specified Non-financial Assets (SNFAs), can be accepted by banks to settle either the full loan amount or part of it.
2. If only part of the loan is settled through the asset takeover, the remaining unpaid loan will be treated as a restructured loan and existing restructuring rules will apply.
3. Banks will have to regularly reassess the value of these assets and continue showing them at the lower value to stay prudent.
4. RBI has proposed that banks cannot hold such assets forever. They must sell them within a maximum period of seven years
5. To prevent misuse, banks will not be allowed to sell these assets back to the original borrower or related parties. Banks will also have to clearly disclose how much of such assets they hold in their balance sheets.
The Reserve Bank of India has issued draft norms for properties and non-financial assets that banks and other regulated entities (REs) use as collateral when borrowers fail to repay the amount.
The bank released the draft circular on Wednesday, aiming to bring transparency and clarity to the process.
When a loan turns into a bad loan (non-performing asset or NPA) and recovery options fail, banks may take ownership of the pledged property to recover dues.
Among the major proposed guidelines are seven-year cap on holding such assets, mandatory disclosure in balance sheets, and conservative asset valuation and more.
5 Things One Should Know About New Proposed Guidelines:
1. Banks can take over assets only when the loan has already become an NPA and other recovery methods are not working. These assets, called Specified Non-financial Assets (SNFAs), can be accepted by banks to settle either the full loan amount or part of it.
2. If only part of the loan is settled through the asset takeover, the remaining unpaid loan will be treated as a restructured loan and existing restructuring rules will apply.
3. Banks will have to regularly reassess the value of these assets and continue showing them at the lower value to stay prudent.
4. RBI has proposed that banks cannot hold such assets forever. They must sell them within a maximum period of seven years
5. To prevent misuse, banks will not be allowed to sell these assets back to the original borrower or related parties. Banks will also have to clearly disclose how much of such assets they hold in their balance sheets.