Outlook Business Desk
The Reserve Bank of India (RBI) released draft guidelines on Tuesday to regulate how banks, Non-Banking Financial Companies (NBFCs) and other lenders can acquire immovable assets during loan recovery in exceptional situations.
Typically, lenders do not take ownership of non-financial assets such as property or machinery in regular lending. However, in stressed cases where borrowers fail to repay loans, lenders may rely on legal measures to recover dues.
Lenders can take over property only after a loan turns non-performing and all recovery options fail. These assets, pledged as collateral, become part of the recovery process once legal action begins.
The RBI defines such seized immovable assets as Specified Non-Financial Assets or SNFAs. These are properties acquired by lenders either fully or partially to settle outstanding dues when borrowers cannot repay their loans.
Under the draft Prudential Norms on Specified Non-Financial Assets Directions, lenders must sell such assets in a timely, transparent and controlled manner to ensure financial prudence and maximise recovery value.
The draft says only loans tagged as non-performing, where all recovery options have failed, can be settled by lenders through taking over non-financial assets.
The RBI has proposed that lenders cannot hold such assets indefinitely, setting a maximum limit of seven years to ensure timely sale and avoid long-term accumulation of these properties.
To reduce misuse, lenders cannot sell these assets back to the borrower or related parties. The RBI said the draft aims to bring clarity and has invited public feedback on the framework until May 26.