Repossessed, Revalued, Regulated: RBI’s framework for treatment of repossessed property

-Anita Baid & Dayita Kanodia | finserv@vinodkothari.com

RBI, on May 5, 2026, came out with the draft directions on Specified Non-financial Assets (SNFA). These directions have been introduced with the intent of specifying the treatment of non-financial and non-banking assets, particularly immovable property, acquired by the lender in satisfaction of their claims on the borrower. 

It is relevant to note that a common framework has been introduced for banks and NBFC, which is in contradiction to the recent consolidation approach adopted by the Department of Regulations. This could possibly also create confusion as to the treatment of non-banking assets relevant for banks, being referred to under the common framework, to be also made applicable on NBFC. In case of banks, the Banking Regulations Act prohibits banks from holding such non-banking assets (NBAs) beyond a period of 7 years, except for property acquired for own use.

Key Highlights of the Proposal:

Our comments on the key proposals have been provided below:

1. SNFA would include those immovable assets which are acquired by a RE in satisfaction or part satisfaction of its claims on the borrower along with the non-banking assets as per Section 9 of the BR Act. 

VKC comment: This would mean that movable property, like vehicles, equipment, is not being covered under the purview of these regulations. Further, the restriction on banks as provided under the BR Act to acquire any immovable assets other than assets put to its own use should not apply to NBFCs. 

2. The SNFA can only be acquired by the RE concerned when
   1. The RE’s exposure to a borrower is classified as non-performing, and 
   2. Where other means of recovery have been explored and deemed unviable.

VKC comment: This could be practically challenging since in certain adverse situations (like fraud classification) the RE may not want to wait for the asset to turn into an NPA before repossession is done. However, practically, evaluation and classification as fraud would easily take 90 days.

Further, the fact that all other means of recovery has been explored and deemed unviable would be very subjective to establish. 

3. Acquisition will result in proportionate extinguishment of the exposure in lieu of which the SNFA is being acquired. Any part extinguishment of claims by the RE concerned would be deemed as restructuring

VKC comment: It is understood that any compromise settlement of the dues would be done as per the extant regulations for banks and NBFCs (as the case may be) and the amount outstanding post such settlement shall be considered to determine the remaining claims, if any.

4. Upon acquisition, the SNFA shall be recorded in the balance sheet at the lower of-
   1. The NBV of the extinguished exposure or 
   2. The distress sale value of the SNFA arrived at by at least two independent external valuers.

At each subsequent reporting date, the SNFA shall be carried on the balance sheet at the lower of the last available distress sale value, or the revised NBV (value of extinguished exposure, net of the notional provisions applicable had the exposure continued on the books of the RE).

VKC Comment: The accounting treatment of the SNFA should have been governed as per the provisions of the accounting standards (para 3.2.23 of Ind AS 109). There could be a possible conflict since the accounting standards require the asset to be recognised on fair value. 

5. Post-acquisition, the SNFA will be revalued at least once every two years on a distress sale basis. The reasons for failure to dispose of the asset earlier shall also be recorded. Valuation gains should be ignored and any diminution in value should be recognised in profit and loss statement immediately.

6. Any accrued interest or charges with respect to the exposure shall not be recognised till the SNFA is actually disposed off and such interest or charges are received by the RE.

VKC Comment: This is consistent with the IRAC provisions which requires the RE to shift from accrual accounting to cash basis accounting upon the asset turning into an NPA. 

7. Any expense/income incurred for the SNFA should be recognised in the P/L account for the year in which the same is incurred/earned.

8. Disposal of such SNFA shall be by way of a public auction following the SARFAESI procedures

VKC Comment: SARFAESI is applicable to NBFCs having an asset size of more than 100 crore and where the outstanding amount is a minimum of ₹20 L. Accordingly, in some cases, SARFAESI may not be applicable at all. In such cases, following SARFAESI procedures should ideally not be made mandatory. 

9. SNFA cannot be sold back to the borrower or its RPs (as defined under the IBC, 2016)

VKC Comments: Even under IBC, 29A bars the borrower and its connected persons from bidding on the repossessed assets (except for certain exemptions in case of MSME borrowers). 

10. In case of failure to dispose the SNFA within earlier of:
    1. 7 years from the date of acquisition or 
    2. The carrying value becoming zero

the asset shall be deemed to have been employed for its own use by the RE and will be recorded as a fixed asset.

VKC Comments: It seems unclear if the RE concerned can put the assets to its own use immediately on the acquisition of such assets. 

11. Specific disclosure to be made as a part of the financial statements as per the format prescribed by RBI. 

Also, read our article,

• A Guide to Accounting of Collateral and Repossessed Assets.