The Reserve Bank of India has issued final prudential norms under the Resolution of Stressed Assets Directions 2026, prohibiting banks, small finance banks, and non-banking financial companies from selling specified non-financial assets (SNFAs) acquired during stressed loan resolution back to defaulting borrowers or their related parties. According to The Economic Times, Banking Standard, The Hindu BusinessLine, and latest reports, these new norms will come into effect from October 1, 2026, providing clarity on the prudential treatment of such assets. The amended directions require banks to dispose of immovable assets acquired against bad loans within seven years through public auction conducted in accordance with SARFAESI Act, 2002 principles. The RBI has now introduced additional restrictions on income recognition, directing that any accrued but unrealised interest and charges from the extinguished exposure pertaining to periods prior to acquisition of an SNFA shall not be recognised as income upon acquisition of the asset. The central bank clarified that an SNFA would be deemed to have been acquired only after the asset's title has been transferred to the bank, enabling it to deal with the asset independently.
An SNFA refers to an immovable asset acquired by a lender in full or partial satisfaction of its claims on a borrower, with banks' definition also including non-banking assets acquired under the Banking Regulation Act, 1949. As reported by The Economic Times, Banking Standard, The Hindu BusinessLine, and latest reports, SNFAs can be acquired only where the lender's exposure to a borrower has been classified as a non-performing asset, with acquisition taking place against full or partial extinguishment of outstanding loans on a non-recourse basis. In cases of partial extinguishment, the remaining exposure will be treated as a restructured loan. The RBI clarified that an SNFA would be deemed to have been acquired only after the asset's title has been transferred to the bank, enabling it to deal with the asset independently. Regulated entities are not expected to come into possession of non-financial assets in the normal course of regular lending operations, but in exceptional cases where exposures become non-performing and legal or contractual remedies have been invoked, they may acquire ownership of immovable assets furnished as collateral security as part of a recovery strategy.
The RBI has directed banks, small finance banks, and NBFCs to frame board-approved policies covering acquisition and disposal of SNFAs, specifying limits as a share of total assets, eligibility criteria, delegation of powers, recovery efforts before acquisition, and a maximum disposal period of seven years. According to The Economic Times, Banking Standard, The Hindu BusinessLine, and latest reports, SNFAs must be recorded in balance sheets at the lower of the net book value of the extinguished exposure or the distress sale value determined by at least two independent external valuers. The framework will apply to all SNFAs, including those acquired through bilateral transactions or under the SARFAESI Act. If an SNFA is put to the bank's own use, it will cease to be classified as an SNFA and will instead be recorded as a fixed asset or under another relevant accounting head. The RBI noted that one stakeholder feedback suggested borrowers may be allowed to buy back properties, but rejected this proposal, stating it could create moral hazard and dilute credit discipline by allowing defaulting borrowers a preferential opportunity to regain the asset.
Under the amended directions, SNFAs must be revalued at least once every two years on distress sale basis, duly factoring in the reasons for failure to dispose of the asset earlier. Valuation gains, if any, shall be ignored and any diminution in value shall be recognised in profit and loss statement immediately. The RBI has barred banks from selling such assets back to the borrower or related parties, as defined under the Insolvency and Bankruptcy Code, 2016, with the restriction continuing even if the asset later ceases to be classified as an SNFA. Legacy SNFAs outstanding as on September 30, 2026 must comply with the new norms by September 30, 2027. The directions prescribe separate disclosure requirements, with SNFAs not forming part of Gross NPA, Net NPA, stressed exposures, or provisioning coverage ratio but instead being disclosed under separate accounting heads in balance sheets. These could be categorised as 'non-banking assets acquired in satisfaction of claims' or 'Specified Non-Financial Assets' or 'Other Assets' in accordance with applicable regulations and accounting standards.
The RBI has introduced comprehensive accounting norms for SNFAs, directing that any income received from an SNFA should be recognised in the income statement as 'non-interest/other income' in the financial year in which it is actually realised. Similarly, any expenditure incurred towards the upkeep of an SNFA should be recognised in the income statement in the financial year in which the expense is incurred. Under the new income recognition norms, the RBI said any accrued but unrealised interest and charges relating to the extinguished loan exposure before acquisition of an SNFA shall not be recognised as income upon acquisition of the asset. The central bank further directed that if such unrealised income has already been recognised in respect of any SNFA outstanding in the books of commercial banks, small finance banks or NBFCs as on September 30, 2026, it must be reversed through the Profit and Loss account by September 30, 2027, to the extent it remains unrealised on that date. These changes are aimed at ensuring uniform prudential treatment and accounting practices for specified non-financial assets across regulated entities, following the finalisation of the Prudential Norms on Specified Non-Financial Assets after examining stakeholder feedback received on the draft directions issued on May 5, 2026.
