The Reserve Bank of India (RBI) has taken another significant step in strengthening the prudential framework governing stressed assets by introducing a dedicated regulatory regime for Specified Non-Financial Assets (SNFAs). Through the Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Third Amendment Directions, 2026, effective from October 1, 2026, banks now have a comprehensive framework governing the acquisition, valuation, holding, disposal and disclosure of immovable assets acquired in satisfaction of borrower dues.

The amendment recognises a practical reality of credit recovery—banks occasionally become owners of immovable property while enforcing security or resolving stressed loans. However, owning and managing real estate is fundamentally different from the business of banking. The new framework therefore seeks to ensure that such acquisitions remain an exception and are subject to disciplined prudential oversight.

Banks generally recover their dues by enforcing security interests, restructuring loans or initiating insolvency proceedings. In some cases, however, the borrower transfers ownership of an immovable asset to the lending bank towards full or partial settlement of outstanding debt. Until now, the prudential treatment of such assets lacked a dedicated regulatory framework.

The RBI has addressed this gap by defining SNFAs as immovable assets acquired by banks in satisfaction or part satisfaction of their claims against borrowers, including non-banking assets acquired under the Banking Regulation Act, 1949.

By creating a separate regulatory category, the RBI distinguishes such assets from conventional banking assets and reinforces the principle that banks should not evolve into long-term holders of real estate.

The Directions prescribe clear conditions before an SNFA can be recognised.

A bank may acquire an SNFA only where:

The borrower's exposure has already been classified as a Non-Performing Asset (NPA).
The acquisition results in full or partial extinguishment of the outstanding exposure on a non-recourse basis.
Legal title to the immovable property has been transferred to the bank, enabling it to independently deal with the asset.

Where only part of the debt is extinguished through acquisition of the SNFA, the remaining exposure is treated as a restructured exposure, thereby attracting the prudential norms applicable to restructuring under the RBI Directions.

These conditions prevent banks from using property acquisitions as an alternative lending mechanism and ensure that acquisitions occur only within a genuine recovery process.

One of the most important features of the framework is the methodology for recognising the value of an SNFA on the bank's balance sheet.

Upon acquisition, the asset must be recorded at the lower of:

The Net Book Value (NBV) of the extinguished exposure; or
The Distress Sale Value (DSV) determined by at least two independent external valuers.

Perhaps the most significant policy message emerging from the amendment is that banks are not expected to become long-term owners of immovable assets.

Accordingly, every bank is required to formulate an internal policy governing such SNFAs.

The policy cannot permit an SNFA to be held for more than 7 (seven) years. Banks are also expected to make every effort to dispose of such assets through public auction while adhering to the auction principles under the SARFAESI Act, 2002. Importantly, an SNFA cannot be sold back to the defaulting borrower or its related parties, even after the asset ceases to be classified as an SNFA.

These restrictions strengthen market integrity and reduce the possibility of abusive recovery structures.

The SNFA framework reflects the RBI’s broader regulatory philosophy that recovery mechanisms should preserve financial discipline without altering the essential character of banking institutions. By prescribing clear rules on acquisition, valuation, governance and disposal of immovable assets obtained through debt recovery, the Directions strike a careful balance between operational flexibility and prudential regulation. As banks continue to address stressed assets in an evolving credit environment, the framework is expected to promote greater transparency, consistency and accountability in the management of non-financial assets acquired during the recovery process.

RBI's Specified Non-Financial Assets Framework