RBI Bars Lenders From Selling Stressed Assets Back to Defaulting Borrowers

The Reserve Bank of India (RBI) has issued final prudential norms under the Resolution of Stressed Assets Directions, 2025, prohibiting banks, small finance banks and non-banking financial companies (NBFCs) from selling specified non-financial assets (SNFAs) back to defaulting borrowers or their related parties, reports said. .

These regulations come into effect from October 1, 2026. This restriction continues even if the asset later ceases to be classified as an SNFA.

"A SNFA shall not be sold back to the borrower or its related parties. Related parties shall have the same meaning as defined in the Insolvency and Bankruptcy Code, 2016," the RBI said.

Defining Specified Non-Financial Assets

An SNFA refers to an immovable asset that a lender acquires to fully or partially satisfy its claims on a borrower.

For commercial banks, this definition includes non-banking assets acquired under the Banking Regulation Act, 1949.

Lenders generally do not trade in immovable assets as part of their core business, except when they acquire them to satisfy claims. They can only acquire these assets if their exposure to a borrower is classified as a non-performing asset.

Lenders acquire these assets by fully or partially extinguishing the outstanding loan on a non-recourse basis. For partial extinguishments, the remaining exposure is treated as a restructured loan under applicable prudential norms.

Governance and Disposal Framework

Lenders must frame board-approved policies covering the acquisition and disposal of SNFAs.

These policies must specify limits on such assets as a share of total assets, eligibility criteria, delegation of powers, recovery efforts before acquisition and a maximum disposal period of seven years.

Lenders must record SNFAs in the balance sheet at the lower of the net book value of the extinguished exposure or the distress sale value. At least two independent external valuers must determine this distress value.

The RBI has directed lenders to make all efforts to dispose of these assets through public auctions following the principles of the SARFAESI Act, 2002.

Legacy Assets and Disclosures

Legacy SNFAs outstanding as of September 30, 2026 must comply with the new norms by September 30, 2027.

These assets will not form part of gross NPA, net NPA, stressed exposures or provisioning coverage ratios.

Instead, banks, small finance banks and NBFCs must disclose them under separate accounting heads in their balance sheets.