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The Reserve Bank of India has issued draft guidelines outlining conditions under which banks and non-banking financial companies may acquire immovable assets as part of loan recovery. The proposal applies to exceptional cases where loans turn non-performing and other recovery avenues are exhausted. The draft introduces the concept of specified non-financial assets, covering collateral properties taken over in settlement of dues, and prescribes a maximum holding period of seven years for disposal. It also restricts resale of such assets to borrowers or related parties to address moral hazard concerns. The central bank has invited public comments on the framework, which aims to standardise practices and improve transparency in recovery processes.
The Reserve Bank of India in the past week released draft guidelines to define prudential norms governing the acquisition of immovable assets by regulated entities, including banks and non-banking financial companies, in cases linked to loan recovery. The framework seeks to formalise the treatment of such assets when lenders take possession of collateral properties following loan defaults. Advertisement
Under the proposed norms, regulated entities are not expected to hold non-financial assets as part of their routine lending operations. However, in exceptional circumstances where loan exposures turn non-performing and legal or contractual recovery mechanisms have been initiated, lenders may acquire ownership of immovable assets pledged as collateral. This acquisition would form part of the recovery strategy aimed at addressing stressed assets.
The central bank has introduced the term ‘specified non-financial asset’ (SNFA) to define such properties. These include immovable assets acquired by lenders either in full or partial satisfaction of claims against borrowers, including those categorised as non-banking assets. The draft clarifies that only exposures classified as non-performing and where alternative recovery options have been evaluated and found unviable would qualify under this mechanism.
The guidelines emphasise that once such assets are acquired, they must be disposed of in a controlled and time-bound manner. The RBI has proposed a maximum holding period of seven years for these assets, with the objective of ensuring timely liquidation and preventing prolonged balance sheet exposure to non-core assets. Disposal is expected to be carried out on an arm’s-length basis to maximise recovery value while maintaining transparency in the process.
To address potential conflicts of interest and moral hazard, the draft norms prohibit regulated entities from selling these assets back to the original borrower or any related parties. This provision is intended to prevent circular transactions and ensure that recovery processes remain fair and independent.
The RBI stated that the draft directions aim to provide clarity on the prudential treatment of such assets and bring consistency to practices followed by lenders in dealing with distressed loans secured by real estate. The central bank has invited public comments on the proposed framework, with feedback to be submitted within the ongoing consultation period.
Source - PTI
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