The Reserve Bank of India (RBI) has introduced a new rule that changes how banks can deal with properties seized during loan recovery.
Under the new rule, if a bank takes possession of a person’s or company’s land, house, or any other immovable property because of unpaid loans, it cannot sell that property back to the same borrower or anyone closely linked to them.
Why Has RBI Introduced This Rule?
The RBI said banks are not meant to own non-financial assets like land or houses. However, when a borrower fails to repay a loan for a long time and the account becomes a Non-Performing Asset (NPA), banks can legally take possession of the mortgaged property.
Some people suggested that borrowers should be allowed to buy back their seized property. However, the RBI rejected the proposal.
According to the central bank, allowing this could encourage people to intentionally default on loans and later repurchase the same property, which would weaken financial discipline.
What Do the New Rules Say?
The RBI has directed banks to sell seized properties through a public auction as soon as possible.
Banks will also not be allowed to keep such properties indefinitely. They can hold these assets for a maximum of seven years before disposing of them.
Before selling or recording the property, banks must get it valued by at least two independent valuers. The property’s value will then be recorded in the bank’s accounts based on these assessments.
If a bank later decides to use the property for its own operations, it will no longer be treated as a non-financial asset. Instead, it will be recorded as a fixed asset.
When Will the New Rule Take Effect?
The new RBI rules will come into force from October 1, 2026.
The move is aimed at making the loan recovery process more transparent, preventing misuse of seized assets, and strengthening discipline in the banking system.
