RBI Draft Norms: Banks & NBFCs Asset Acquisition

Mumbai, May 5 (PTI) The Reserve Bank of India on Tuesday issued draft guidelines to lay down norms for acquisition of immovable assets by regulated entities, including banks and NBFCs, in exceptional cases as part of loan recovery processes.

Regulated entities (REs) are, in normal course, not expected to come into possession of non-financial assets in lieu of their regular lending operations.

However, in exceptional cases, where the exposures become non-performing and legal or contractual remedies have been invoked, REs may, as part of recovery strategy, acquire ownership of an immovable asset furnished as collateral security.

A controlled and timely disposal of such asset, on an arm's-length basis, may enable the RE to maximise net recoveries while ensuring transparency and prudence in the recovery process, the RBI said in the draft 'Prudential Norms on Specified Non-financial Assets Directions' for public comments.

"Only exposures classified as non-performing, in respect of which other


recovery options have been explored and assessed to be unviable, shall be eligible for extinguishment in terms of these directions," the draft said.

Specified Non-financial asset (SNFA) means an immovable asset acquired by an RE in satisfaction or part satisfaction of its claims on the borrower, including nonbanking assets (NBAs).

The draft further said REs may acquire SNFAs in lieu of full or partial extinguishment of their claims against the borrower.

Also, a maximum holding period of seven years has been proposed with a view to ensuring timely disposal of such SNFAs.

"To mitigate moral hazard, REs shall be prohibited from selling the SNFA back to the borrower or to any related party of the borrower," the draft added.

The draft norms have been issued to provide clarity on prudential treatment of such assets, the central bank said while inviting comments by May 26.