RBI bars loan defaulters from buying back their own seized assets

The Reserve Bank of India has shut a longstanding loophole that let defaulting borrowers quietly buy back the very properties banks seized to recover their unpaid loans. Under new directions taking effect Oct 1, 2026, defaulters and their related parties, as defined under the Insolvency and Bankruptcy Code, 2016, are barred from repurchasing such assets from any bank or finance company.

The restriction does not expire once the asset changes hands or purpose. Even if a lender later reclassifies the seized property or puts it to a different use, the original defaulter and related parties remain permanently locked out of buying it back.

Banks will also need to tighten their own internal processes before they can acquire non-financial assets in the first place. The RBI’s directions require board-approved policies that cap how much of a bank’s total assets can be made up of such seized property, define clear eligibility criteria, lay out delegation structures for approval, and document the recovery efforts made before acquisition.

Acquisition itself is limited strictly to accounts that are already classified as non-performing assets, and banks can only formally record a seized asset on their books once legal title has been transferred and the lender has full control over it.

Once acquired, the clock starts ticking: lenders must dispose of these assets through public auctions following Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act principles within seven years. For assets banks already hold as of Sept 30, 2026, the RBI has given until Sept 30, 2027 to fall in line with the new framework.

The central bank has also standardised how such assets are valued and accounted for if a lender retains the property: banks must record it at the lower of the settled loan’s net book value or a distress sale value set by at least two external valuers, and must disclose it separately rather than folding it into gross NPA, net NPA, or provisioning coverage ratio figures.

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