The Reserve Bank of India (RBI) announced on Tuesday that lenders may classify collateral as specified non-financial assets (SNFAs) only when all other recovery options have been exhausted and hold them for up to seven years. According to reports from Mint and The Economic Times, the central bank stated that regulated entities may acquire ownership of immovable assets furnished as collateral security as part of a recovery strategy, with controlled and timely disposal enabling lenders to maximize net recoveries while ensuring transparency and prudence in the recovery process.
The proposed framework will apply only to assets against exposures that have been classified as non-performing assets (NPAs) and for which other recovery options, such as legal or contractual remedies, have been explored and found to be unviable. As reported by Mint, such assets, almost exclusively real estate and non-banking assets, continue to represent a substantial portion of the collateral pool underlying bank exposures in India. Banks will be required to record and carry SNFAs at the lower of the Net Book Value (NBV) of the extinguished exposure or the distress sale value, which can be revised to the lower of the last available distress value at each subsequent reporting date.
To ensure timely disposal, the central bank has proposed a maximum holding period of seven years, with any failure to dispose resulting in the SNFA being deemed employed for the lender's own use and recorded under 'fixed assets' or other relevant accounting heads. According to Mint and The Economic Times, to mitigate moral hazard, lenders have been barred from selling the SNFA back to the borrower or any related party, even if the asset has ceased to be an SNFA. Banks will be required to demonstrate efforts to dispose of the SNFA at the earliest through public auction and put in place policies for acquisition and disposal, including defining limits on SNFAs as a share of total assets.
Legal experts have welcomed the framework as providing structured alternatives to formal insolvency proceedings. As reported by Mint, Amey Pathak from Cyril Amarchand Mangaldas noted that the seven-year outer limit is both pragmatic and commercially sensible, affording banks essential breathing room to avoid forced fire sales in inherently illiquid real estate markets. Rohit Jain from Singhania & Co. highlighted that the policy mirrors Insolvency and Bankruptcy Code's concerns about defaulting promoters regaining assets through back doors, though absolute bars may depress price discovery where the borrower is the highest-value user.
The RBI has sought comments and feedback on the proposals by 26 May 2026, as reported by Mint and The Economic Times. Banks and NBFCs will be required to put in place comprehensive policies including eligibility criteria, delegation matrices, and recovery efforts to be explored before acquisition. Post-acquisition, SNFAs will be revalued at least once every two years on a distress sale basis, with any diminution in value recognized immediately in the profit and loss statement. Banks will also be required to periodically disclose SNFAs on their balance sheets, with residual exposures from partial extinguishment treated as restructured.
