RBI’s new rule: banks can’t sell seized assets back to the defaulters who lost them
The Reserve Bank of India has barred defaulting borrowers and their related parties from repurchasing assets that banks seize to recover unpaid loans.
India’s banking regulator has moved to close a gap that let loan defaulters end up owning their old properties again. The Reserve Bank of India’s new directions, effective Oct 1, 2026, bar defaulters and their related parties, as defined under the Insolvency and Bankruptcy Code, 2016, from buying back assets that a bank or finance company acquired to recover unpaid dues.
Crucially, the block does not have an expiry date tied to what the bank does with the asset afterward. Whether the lender reclassifies the seized property or repurposes it for other use later, the same defaulter and related parties remain barred from repurchasing it.
To even reach the point of acquiring such an asset, banks now need board-approved internal policies covering how much of their total assets can be non-financial property, who is eligible to sign off, clear delegation of authority, and documentation proving recovery efforts were made first. Only accounts already tagged as non-performing assets are eligible for this route.
Formal recognition of a seized asset on a bank’s books can happen only after legal title is transferred and the lender has full control over it. From there, the RBI requires disposal through public auction under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act principles within seven years. Assets banks already hold as of Sept 30, 2026 have a compliance deadline of Sept 30, 2027.
The regulator has also tightened how these assets are valued when a lender chooses to retain rather than immediately auction them, requiring the lower of the settled loan’s net book value or a distress sale value certified by at least two external valuers.
Disclosure rules have been sharpened as well: seized assets must now be reported separately and kept out of gross NPA, net NPA and provisioning coverage ratio calculations, giving analysts and depositors a clearer read on a bank’s actual loan-recovery health.
Wikimedia Commons/by Pinakpani
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