The Reserve Bank of India (RBI) has barred defaulting borrowers from buying back properties acquired by lenders to satisfy a defaulter's debt, tightening norms for resolution of stressed accounts under its new directions effective October 1, 2026, according to a report by Business Today.
Key Prohibitions and Scope
Defaulters and their related parties, as defined under the Insolvency and Bankruptcy Code, 2016, cannot repurchase such assets from any type of bank or finance company, the report stated. The restriction applies even if the asset is reclassified or used by the lender later, closing a potential loophole for defaulters to regain control of collateral.
Board-Approved Policies and Acquisition Conditions
According to the directions, banks must adopt board-approved policies that set caps on specified non-financial assets as a share of total assets, define eligibility criteria, lay out delegation structures, and document recovery efforts before acquisition. The central bank has set conditions for recognising such assets: banks can record them only after legal title is transferred and when the lender has full control over the asset. Importantly, acquisition is limited to accounts already classified as non-performing assets (NPAs).
Disposal Timeline and Compliance Deadlines
The norms require banks to dispose of these assets through public auctions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act (SARFAESI) principles within seven years, per the source. For assets already held as of September 30, 2026, banks must comply with the framework by September 30, 2027.
Valuation and Accounting Standards
When the property is retained by the lender, RBI has standardised valuation and accounting. Banks must record such assets at the lower of the net book value of the settled loan portion or the distress sale value determined by at least two external valuers. Seized assets must be disclosed separately and cannot be included in gross NPA, net NPA, or provisioning coverage ratios, according to the report.
Implications for CFOs and Treasury Professionals
The new regulation directly impacts how banks treat collateral from defaulting firms, with clear implications for cost of capital and trade finance for companies that have defaulted or have related-party exposure. Defaulters are now permanently excluded from reacquiring assets they lost, increasing the risk that collateral will be sold to third parties at potentially lower prices. For treasury directors, this means that borrowing costs for stressed firms may rise as banks face stricter norms on asset recovery and provisioning. The separate disclosure requirement also improves transparency for investors assessing bank balance sheets, particularly regarding asset quality and provisioning coverage. Trade finance professionals should note that banks may become more cautious when extending credit to firms with past default records, as the ability to recover value through asset sales is now constrained by the ban on repurchase.
| Requirement | Detail |
|---|---|
| Effective date | October 1, 2026 |
| Prohibited parties | Defaulters and related parties as per IBC 2016 |
| Asset disposal method | Public auction under SARFAESI |
| Maximum holding period | 7 years |
| Compliance for existing assets | By September 30, 2027 |
| Valuation basis | Lower of net book value (settled portion) or distress sale value from two external valuers |
| Disclosure | Separate line item, excluded from NPA ratios |
The RBI's action signals a continued tightening of the regulatory environment for stressed asset resolution, with direct consequences for the cost and availability of capital for defaulted entities and their affiliates.
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