Banks can’t sell seized assets back to defaulters anymore, RBI tightens the rules

From Oct 1, 2026, a defaulter whose property gets seized by a bank in India will have no way of ever legally reclaiming it. The Reserve Bank of India’s new directions bar defaulters and their related parties, as defined under the Insolvency and Bankruptcy Code, 2016, from repurchasing assets acquired by any bank or finance company to recover unpaid debt.

The rule is written to hold regardless of what happens to the asset afterward. Even if the lender later reclassifies it or repurposes it for a different use, the original defaulter and connected parties still cannot buy it back.

Before that stage is even reached, the RBI wants banks operating under tighter internal discipline: board-approved policies capping non-financial assets as a share of total assets, defined eligibility criteria, clear delegation of decision-making, and documented recovery efforts on record before any acquisition. Only accounts already classified as non-performing assets qualify for acquisition in the first place.

A bank can only formally recognise a seized asset once legal title has transferred and it holds full control over the property. After that, a seven-year deadline applies for disposal through public auction under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act principles. Banks already holding such assets as of Sept 30, 2026 have until Sept 30, 2027 to bring their books in line.

Valuation has also been standardised for assets a lender chooses to retain: banks must record them at the lower of the settled loan’s net book value or a distress sale value determined by at least two external valuers.

The central bank has additionally ordered that these seized assets be disclosed separately going forward, rather than folded into a bank’s gross NPA, net NPA, or provisioning coverage ratio figures.

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