The Reserve Bank of India has issued new guidelines effective October 1, 2026, prohibiting lenders from selling acquired stressed assets back to defaulting borrowers. This move aims to ensure transparency in loan resolutions and prevents potential conflicts of interest. Banks and NBFCs must now update their disposal policies and meet new valuation and disclosure standards for these assets.
The Reserve Bank of India has introduced strict new norms to govern how banks and non-banking financial companies (NBFCs) manage immovable assets acquired during the resolution of stressed loans. Starting October 1, 2026, lenders will be legally barred from selling these specified non-financial assets (SNFAs) back to the original defaulting borrowers or any of their related parties. This directive applies to commercial banks, small finance banks, and NBFCs.
Curbing Circular Deals in Asset Resolution
Historically, concerns have existed regarding whether lenders might indirectly allow defaulting promoters to regain control of assets through complex or opaque resolution processes. By prohibiting the sale of SNFAs to the borrower or related parties, the central bank aims to eliminate potential conflicts of interest and ensure that asset disposals are conducted in a fair, market-driven manner. The restriction on related parties is aligned with definitions found under the Insolvency and Bankruptcy Code of 2016.
New Policy and Disclosure Framework
Recognizing that banking institutions are typically not equipped to manage real estate or other immovable properties, the RBI has required all regulated entities to implement board-approved policies for the acquisition and disposal of these assets. These policies must specify clear limits on how much of the lender’s total assets can be tied up in SNFAs, as well as the maximum timeline for disposal, which is now capped at seven years.
To ensure transparency, the new rules mandate that these assets must be recorded on the balance sheet at the lower of the loan's net book value or the distress sale value. This valuation must be verified by at least two independent external valuers. Furthermore, the RBI has clarified that SNFAs will be treated under distinct accounting heads, separate from standard Non-Performing Asset (NPA) classifications and associated provisioning requirements.
Impact on Legacy Assets
For assets already held on balance sheets as of September 30, 2026, the central bank has provided a one-year transition period. Lenders must bring their legacy SNFA portfolios into compliance with these new regulations by September 30, 2027. While public auctions remain the preferred route for disposal under the SARFAESI Act, the move toward stricter board-level oversight and mandated valuation processes is expected to change how banks approach long-term recovery strategies. Investors should track how these new disclosure requirements affect the reporting of recovery timelines and whether the seven-year disposal limit leads to an increase in public auctions by banks in the coming quarters.