RBI’s new SNFA rules: Banks barred from selling assets to loan defaulters

4 min readMumbaiJul 16, 2026 09:29 PM IST

The RBI has issued the Third Amendment Directions, 2026 under its Commercial Banks-Resolution of Stressed Assets Directions, 2025. (File Photo)

The Reserve Bank of India (RBI) has introduced the concept of specified non-financial assets (SNFAs) in the event of loan defaults and mandated that disposal of such assets should primarily be through public auctions under SARFAESI Act principles and prohibited resale to the original borrower or related parties.

SNFAs refer to immovable properties that banks acquire when borrowers fail to repay loans. Such assets include residential buildings, commercial properties, industrial land or other real estate accepted by banks in settlement of outstanding debt.

The RBI has issued the Third Amendment Directions, 2026 under its Commercial Banks-Resolution of Stressed Assets Directions, 2025. The new regulations establish a comprehensive framework for how banks should acquire, value, manage and dispose of non-financial assets obtained from defaulting borrowers.

Acquisition, valuation guidelines

According to the new directions, banks may acquire an SNFA only after a borrower’s loan has been officially classified as a non-performing asset (NPA). The acquisition must involve either full or partial settlement of the bank’s outstanding exposure. In cases where only part of the loan is settled through the transfer of property, the remaining debt will continue to be treated under restructuring norms, ensuring that banks maintain appropriate provisioning and risk management standards.

The central bank has introduced strict valuation guidelines to prevent overvaluation. Every acquired property must be recorded at the lower of two values — the net book value of the extinguished loan or the distress sale value determined independently by at least two external valuers. Banking experts believe this conservative valuation method will reduce the possibility of inflated asset values appearing on bank balance sheets while encouraging more realistic financial reporting.

The amendment also requires every commercial bank to formulate a detailed internal policy governing the acquisition and disposal of SNFAs. The policy must specify eligibility criteria, approval procedures, recovery efforts to be attempted before acquiring property, limits on such assets relative to total bank assets and a clear timeline for disposal. Importantly, the RBI has capped the maximum holding period at seven years, after which banks are expected to have disposed of the assets.

Banks can’t sell back to borrowers, SNFAs not part of NPAs

Under the revised norms, banks are prohibited from selling repossessed properties back to the original borrower or any related parties, even if the property later ceases to be classified as an SNFA. This measure is expected to prevent misuse of the recovery process and improve transparency. Banks had encountered several cases in the past where defaulters claimed return of the property seized by banks.

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Disposal procedures have also been tightened. The central bank has instructed lenders to make every effort to sell these properties through public auctions, following the principles laid down under the SARFAESI Act, 2002.

The RBI has also clarified accounting and disclosure requirements. SNFAs will no longer be counted as part of gross NPAs, net NPAs or stressed assets. Instead, they will appear separately in bank balance sheets under the category “non-banking assets acquired in satisfaction of claims.” Banks must also submit detailed annual reports on these assets through the RBI’s CIMS portal, including information on acquisitions, disposals, age-wise classification and properties put to the bank’s own use.

Legacy assets already held by banks as of September 30, 2026, must be brought into compliance with the new framework by September 30, 2027. The directions will officially come into force on October 1, 2026.

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George Mathew is an Associate Editor with The Indian Express, based in Mumbai. A veteran of financial journalism with nearly three decades of experience, he is one of the country’s most authoritative voices on banking, regulation, and the corporate sector.

Expertise & Focus Areas Mathew’s reporting covers the nerve center of India’s economy. His specialized beats include:

The Reserve Bank of India (RBI): He has tracked the central bank's policy evolution through the tenures of multiple Governors, offering deep insights into monetary policy, repo rates, and banking regulation.

Banking & Insurance: Extensive coverage of public and private sector banks, non-performing assets (NPAs), and key legislative reforms like the Insurance Amendment Bills.

Corporate Affairs: Mathew frequently breaks major stories related to India's largest conglomerates, with a specific focus on the Tata Group, documenting boardroom shifts and strategic decisions.

Financial Markets: Reporting on the complexities of Foreign Portfolio Investors (FPIs), IPOs, and currency fluctuations.

Authoritativeness & Insight With a career dating back to the late 1990s, Mathew possesses a rare institutional memory of India’s financial liberalization and market crises. His work is not limited to daily news; he frequently contributes to the "Explained" section, where he decodes complex financial legislations and market trends for a broader audience. His rigorous reporting has also been featured in scholarly platforms like the Economic and Political Weekly (EPW).

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