The Reserve Bank of India (RBI) has introduced a new rule to stop loan defaulters from getting back properties seized by banks.
Under the new guidelines, if a bank takes possession of a property due to unpaid loans, the defaulter will not be allowed to buy that property again through the auction process.
The restriction also applies to the borrower’s family members, relatives, business partners, or anyone acting on their behalf.
The rule covers all types of immovable properties, including houses, flats, shops, commercial buildings, and mortgaged land.
Why Has RBI Brought This Rule?
When a borrower fails to repay a loan, banks have the legal right to seize the pledged property and recover their money by selling it through a public auction.
According to the RBI, allowing defaulters to participate in these auctions could encourage misuse of the system.
Some borrowers might intentionally stop repaying their loans, expecting to buy back the same property later at a lower price during the auction.
The RBI had released draft rules on this issue in May this year.
While some stakeholders suggested allowing defaulters to participate in auctions, the proposal was not accepted due to the risk of misuse.
Banks Cannot Keep Seized Properties for Years
The RBI has also issued strict timelines for banks to dispose of seized properties.
Banks must sell these properties within the period specified in their board-approved policy.
However, this period cannot exceed seven years.
The central bank has asked banks to sell such assets through public auctions as early as possible to ensure transparency and faster recovery of dues.
What Will Be the Impact of the New Rule?
The RBI says the main aim of the new rule is to discourage intentional loan defaults.
Earlier, there were concerns that some defaulters used relatives or associates to buy back seized properties at lower prices.
This allowed them to regain ownership while avoiding repayment of the original loan.
The new rule is expected to:
Prevent borrowers from deliberately defaulting on loans.
Stop the misuse of public auctions by defaulters and their associates.
Reduce the chances of collusion between bank officials and borrowers.
Improve transparency in the sale of seized properties.
With these changes, the RBI hopes to make the loan recovery process fairer and discourage people from taking advantage of loopholes in the banking system.
