RBI Prohibits Sale of Seized Assets Back to Defaulters

The Reserve Bank of India (RBI) has introduced a regulatory framework restricting defaulting borrowers and their related parties from buying back assets acquired by regulated lenders during debt recovery. The directions will take effect on October 1, 2026.

The restriction covers related parties identified under the Insolvency and Bankruptcy Code, 2016, and applies to banks and financial institutions governed by the directions. It will remain applicable even if the lender subsequently changes the asset’s classification or puts it to another use.

Under the framework, a lender may acquire a specified non-financial asset only against a credit facility already classified as a non-performing asset (NPA). Recognition will be permitted after the legal title has been transferred and the lender has obtained complete control over the asset.

Regulated entities will be required to establish board-approved policies governing such acquisitions. These policies must:

• Prescribe limits on specified non-financial assets as a percentage of total assets.
• Define eligibility and acquisition conditions.
• Establish approval and delegation mechanisms.
• Document the recovery measures undertaken before acquiring an asset.

Assets acquired for debt settlement must generally be sold through a transparent public auction process aligned with the principles of the SARFAESI Act. Lenders will have a maximum period of seven years to complete the disposal.

Assets already held on September 30, 2026, must be brought into compliance with the new framework by September 30, 2027.

Where a lender retains an acquired property, it must recognise the asset at the lower of:

• The net book value of the portion of the loan settled through the acquisition; or
• The distress-sale value determined independently by at least two external valuers.

The RBI has also prescribed separate disclosure requirements for these assets. Their value will not be included while calculating gross NPA, net NPA or provisioning coverage ratios. CA Sansaar