Bank seized your property after loan default? RBI's new rules explained

If a bank acquires your house, commercial property or other immovable asset while recovering a defaulted loan, it can no longer hold on to it indefinitely or sell it back to you.

The Reserve Bank of India (RBI) has issued a new prudential framework governing how banks should account for, value and dispose of immovable properties acquired during the recovery of stressed loans. The directions, which come into effect from October 1, 2026, require banks to put in place Board-approved policies for managing such assets and prescribe timelines for their disposal.

The framework applies to immovable properties that banks acquire in satisfaction of their claims during the recovery of stressed loans. RBI said banks are generally not expected to own non-financial assets as part of their normal business. The directions therefore lay down a uniform framework for dealing with such properties once ownership has been transferred to the lender.

One of the key provisions is that banks should dispose of acquired immovable properties within the timeline specified in their Board-approved policy, subject to a maximum period of seven years. The central bank has also directed lenders to make efforts to sell these assets at the earliest instead of retaining them on their books for extended periods.

To ensure transparency, the directions state that banks should ordinarily dispose of these properties through a public auction.

The framework also requires banks to adopt Board-approved policies covering the acquisition, valuation, management and disposal of such assets, including internal approval processes and timelines for sale.

No. Under the new framework, banks cannot sell an acquired immovable property back to the defaulting borrower or any related party.

In its response to feedback received on the draft directions, the RBI said it had examined suggestions to allow borrowers to repurchase such properties but decided against the proposal. According to the central bank, permitting such sales could create a "moral hazard" and weaken credit discipline by giving defaulting borrowers a preferential opportunity to regain ownership of the asset.

The RBI has also prescribed a uniform valuation methodology. When a bank acquires an immovable property, it must recognise the asset at the lower of the net book value of the extinguished loan or the distress sale value determined by at least two independent external valuers.

The directions govern the treatment of the property only after ownership has legally passed to the bank under the applicable recovery mechanism. They do not alter the legal rights or remedies available to borrowers before the transfer of ownership under laws such as the SARFAESI Act.

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