Background and Context
When a borrower does not repay a loan, banks sometimes take the borrower's immovable property (land or building) in their own name in exchange for the loan. Under RBI's directions, a bank does not ordinarily deal in immovable properties, except in those exceptional cases where it receives such property in satisfaction of a loan. Such property is also called a non-banking asset (NBA) in the context of the Banking Regulation Act, 1949. The RBI has set separate prudential norms for these.
Why in the News
On 16 July 2026, the RBI issued amendment directions on "Specified Non-Financial Assets" (SNFA) for banks and other regulated entities. For commercial banks it is RBI/2026-27/187 (the third amendment of the Resolution of Stressed Assets Directions, 2025), and on income recognition RBI/2026-27/195 was issued alongside. According to the text of the directions, these were issued after examining the feedback received on the draft directions of 5 May 2026 and took effect from 1 October 2026 (this was a future date when issued in July; by the article's check date of 17 October 2026, that date has passed). Old SNFA existing in the books on 30 September 2026 must be brought into compliance by 30 September 2027.
Key Facts and Figures
| Directions | Commercial banks: RBI/2026-27/187 (DOR.STR.REC.168/21-04-048/2026-27), 16 July 2026, third amendment of the "Resolution of Stressed Assets Directions, 2025"; on income recognition RBI/2026-27/195 (DOR.STR.REC.160/21-04-048/2026-27) |
|---|---|
| Effective date | 1 October 2026; old SNFA in the books as of 30 September 2026: compliance by 30 September 2027 |
| Conditions of acquisition (140C-140F) | Ownership in the bank's name; only when the borrower's exposure is NPA; in exchange for full or partial extinguishment of the loan from the borrower, on a non-recourse basis; a partial extinguishment will be regarded as restructuring and the prudential treatment of restructuring will apply to the remaining exposure |
| Valuation (140G, 140I) | Book value on acquisition: the lower of the net book value (NBV) of the extinguished exposure and the "distress sale value" (DSV) determined by at least two independent external valuers; on later dates, adjusted NBV |
| Disposal (140J-140L) | Within the period fixed in the bank's policy, a maximum of seven years; first an attempt at public auction, as per the auction principles of the SARFAESI Act, 2002; no sale back to the borrower or its related parties (the definition of related party as per the IBC, 2016) |
| Disclosure and income (140N, 139C-139D) | SNFA not included in total outstanding exposure, gross/net NPA, stressed exposure and the provision coverage ratio; in the balance sheet under the head "non-banking assets acquired in satisfaction of claims"; unrealised interest income before acquisition not recognised; income from SNFA under "non-interest / other income" |
How the Rules Work - Three Stages
Acquisition: property in exchange for a loan: a bank can take the property only when the borrower's exposure is NPA and ownership comes into the bank's name. Under the directions, the bank's policy should fix SNFA's share in total assets, the eligibility criteria, the delegation of authority and the recovery efforts to be tried before acquisition (paragraph 13B).
Valuation: "whichever is lower": the property will be recorded in the books at the lower of NBV and DSV. The example of paragraph 140H: a loan of ₹2 lakh carries a 15% specific provision, that is an NBV of ₹1.7 lakh. Property was taken in exchange for a extinguishment of ₹1.5 lakh (75%), whose DSV is ₹1.4 lakh. Then the remaining loan will be ₹0.5 lakh, the provision on it ₹0.075 lakh, and the SNFA's value will be the lower of ₹1.4 lakh and the proportional NBV (75% of ₹1.7 lakh = ₹1.275 lakh), that is ₹1.275 lakh.
Disposal: a time limit and auction: the bank must sell the property within a maximum of seven years, first through a public auction, and must not sell it back to the borrower or its related parties. If the bank takes the property into its own use, it ceases to be SNFA from that date and is recorded under a suitable head such as "fixed asset" (140M). The prohibition on sale back still applies.
Why This Change Matters
Transparency: under the directions, SNFA will be shown under a separate head, kept out of total outstanding exposure and the NPA computation, and the bank will have to give its details on the CIMS portal in the RBI's format (140O). This means such properties will appear separately in the balance sheet.
The seven-year limit and the related-party prohibition: by putting a stop to holding property for an indefinite period and returning it to parties linked to the borrower, the directions keep property acquisition a tool of recovery, not of business. This is our interpretation; the directions do not separately state its purpose.
Points of Debate and Cautions
The dependence on valuation: the DSV rests on two independent external valuers. The quality and oversight of the valuers is not determined by this text of the directions.
The link with restructuring: regarding a partial extinguishment as restructuring means the remaining loan will carry restructuring-like provisioning (140F). How much effect this will have on banks' decisions in practice is not determined by our sources.
Entity-wise directions: such amendments were also issued for other categories, whose titles we saw: small finance banks, NBFCs, all-India financial institutions, urban cooperative banks, rural cooperative banks, regional rural banks and local area banks. The paragraph numbers differ by entity - for example, 115A to 115O for urban cooperative banks and 138A to 138O for NBFCs. In this article, the commercial-bank text has been read in full.
Way Forward
What to watch next: the directions are in force from 1 October 2026; now, how banks fix the SNFA limit in their policies, how old SNFA come into compliance by 30 September 2027, and how the format of reporting on CIMS stays. On these, our sources have no information.
Difference in Concepts
Keep three things separate: (1) NPA, a loan classified under the rules in the non-performing category; (2) SNFA, an immovable property coming into the bank's name in exchange for a loan, which has been kept out of the NPA computation; and (3) NBA, a non-banking asset acquired under the Banking Regulation Act, which is included in the definition of SNFA. Under the directions, the acquisition of SNFA happens in exchange for the full or partial extinguishment of a loan, and after that the timeline of the property's disposal runs.
Mains Perspective
GS-III: the banking sector, NPAs and stressed assets; GS-III: financial stability. In the answer, write both the facts (16 July 2026; 1 October 2026; seven years; the lower of NBV and DSV) and the limits.
Answer Outline
Introduction: Immovable property acquired in satisfaction of a loan and the definition of SNFA.
Main Body: Conditions of acquisition; valuation (the lower of NBV and DSV) and the example; disposal (seven years, auction, prohibition on sale to related parties); disclosure and income recognition; benefits and limits.
Conclusion: Connect careful valuation, time-bound disposal and disclosure with recovery and balance-sheet transparency. Keep the lower-of-NBV-and-DSV rule and entity-specific scope clear, and do not treat the regulatory provision as a proven outcome of improved recovery.
Sources
- RBI - Commercial Banks (Resolution of Stressed Assets) Third Amendment Directions, 2026, RBI/2026-27/187 (16 July 2026), full text
- RBI - Commercial Banks (Income Recognition, Asset Classification and Provisioning) Second Amendment Directions, 2026, RBI/2026-27/195 (16 July 2026), full text
- RBI - Urban Cooperative Banks (Resolution of Stressed Assets) Third Amendment Directions, RBI/2026-27/191 (16 July 2026), paragraph numbers and dates cross-checked
The full text of both directions for commercial banks was read from the RBI's website. In the urban cooperative bank and NBFC directions, only the paragraph numbers and dates (seven years, 30 September 2026/2027) were cross-checked; their full text was not read. Only the titles of the other categories' directions were seen. On 17 October 2026, the pages of RBI/2026-27/187 and /195 were reopened and their text matched the text read earlier. No later amendment to these directions was found in a web search on the RBI's site; this search is not a complete inspection of the RBI's index. An FAQ article of 16 October 2026 by a private consulting firm exists, but its text did not load, so it was not used. Annex-2 and the draft of 5 May 2026 were not read.
Remember: under the RBI's directions of 16 July 2026, an immovable property coming into the bank's name in exchange for a loan (SNFA) will be recorded at the lower of NBV and DSV, must be sold within seven years, will remain outside the NPA computation, and is in force from 1 October 2026.
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