RBI Releases Draft Guidelines Clarifying Prudential Treatment Of Specified Non-Financial Assets

Acquisition Limited to Stressed Assets Under the proposed norms, such assets can be acquired only in exceptional cases where loans are classified as non-performing and all other recovery avenues have been explored and found unviable. In cases of partial settlement, the remaining exposure will be treated as a restructured loan and subject to existing prudential norms. Valuation and Accounting Norms The draft directions mandate that SNFAs be recorded at the lower of the net book value of the extinguished loan or the distress sale value of the asset. At subsequent reporting periods, the value must be revised to the lower of the latest distress sale value or adjusted net book value, ensuring prudent accounting practices. Time-Bound Disposal Framework To ensure efficient recovery and avoid asset accumulation, the RBI has proposed a maximum holding period of seven years for such assets. Regulated entities have been advised to prioritise early disposal, preferably through transparent mechanisms such as public auctions. Additionally, entities will be required to disclose SNFAs held in their balance sheets to enhance transparency. Safeguards Against Misuse To prevent moral hazard, the draft rules prohibit the sale of such assets back to the original borrower or related parties. Institutions are also encouraged to establish internal policies covering acquisition limits, eligibility criteria and governance structures. Objective The proposed framework aims to standardise the treatment of non-financial assets acquired during loan recovery, improve transparency, and enable lenders to maximise recoveries while maintaining prudential discipline. (KNN Bureau)