Banks, NBFCs cannot sell back recovered immovable properties to borrowers: RBI

The RBI said on Thursday that a bank which has acquired an immovable asset in an exceptional case as part of a recovery process cannot sell it back to the borrower or related parties. Regulated entities, in the normal course, are not expected to come into possession of non-financial assets in lieu of their regular lending operations.

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

To provide clarity on the prudential treatment of such specified non-financial assets, including non-banking assets, acquired by a bank through various mechanisms, the central bank has issued prudential norms.

"A bank shall dispose of the specified non-financial asset within the maximum period of disposal as envisaged in the bank's policy, subject to a maximum period of seven years," the central bank said, adding that the lender should make all efforts to dispose of the asset at the earliest through a public auction. The RBI earlier issued draft norms in May, which invited feedback. Some stakeholders suggested allowing borrowers to buy back their properties; however, the RBI rejected this, stating it would create moral hazard and dilute credit discipline.