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• The Reserve Bank of India (RBI) has issued new directions prohibiting banks and non-banking financial companies (NBFCs) from selling repossessed immovable properties back to defaulting borrowers or their related parties.
• The revised norms require lenders to dispose of such assets within seven years of acquisition, with limited extensions allowed under specified conditions.
• The framework aims to improve transparency in the disposal of stressed assets, strengthen recovery practices and discourage borrowers from regaining assets after default.
• The guidelines form part of RBI's broader framework governing the acquisition, management and disposal of assets recovered through loan defaults.
The Reserve Bank of India (RBI) has introduced a revised regulatory framework prohibiting banks and non-banking financial companies (NBFCs) from selling immovable properties acquired through loan recovery proceedings back to the defaulting borrowers or entities related to them. The new directions seek to strengthen transparency in stressed asset resolution while ensuring that repossessed assets are disposed of in a fair and time-bound manner.
The framework applies to immovable properties acquired by regulated entities in satisfaction of claims arising from loan defaults. According to the RBI, lenders will not be permitted to transfer such assets to the original defaulting borrower, promoters, directors, guarantors or other related parties connected with the defaulted loan. The restriction is intended to prevent borrowers from regaining control of assets that were seized following non-payment of dues.
The central bank has also prescribed a time limit for the disposal of recovered immovable properties. Banks and NBFCs must sell these assets within seven years from the date they are acquired. In exceptional circumstances, lenders may seek an extension, subject to the conditions laid down by the RBI and approval from the appropriate authority within the regulated entity.
The revised directions require lenders to formulate comprehensive board-approved policies governing the acquisition, management, valuation and disposal of such assets. These policies should establish transparent procedures for marketing properties, conducting valuations, selecting buyers and maintaining records of transactions. The RBI has emphasised that the sale process should be fair, competitive and designed to maximise value recovery.
Regulated entities have also been directed to ensure that immovable assets acquired through recovery proceedings are not held indefinitely. The RBI noted that banks and NBFCs are not expected to function as long-term owners of real estate assets, and timely disposal would reduce operational risks while enabling lenders to focus on their core financial activities.
The framework further strengthens governance requirements by placing responsibility on the boards of regulated entities to oversee compliance with the prescribed norms. Institutions are expected to establish internal controls and monitoring mechanisms to ensure that recovered assets are managed prudently until they are sold.
The new guidelines are expected to have implications for the distressed real estate market, where banks and NBFCs periodically dispose of residential, commercial and industrial properties recovered from borrowers through enforcement proceedings. By preventing the resale of such assets to defaulting borrowers and their associates, the RBI aims to reinforce credit discipline and improve confidence in the recovery process.
The revised directions form part of the RBI's broader efforts to strengthen prudential regulation and improve asset recovery practices across the banking and financial sector. Lenders will now be required to align their internal policies and operational procedures with the updated framework to ensure compliance with the new requirements governing recovered immovable properties.
Source PTI
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