As part of loan recovery operations, the Reserve Bank of India (RBI) has proposed a framework that permits banks and NBFCs to retain specific non-financial assets (SNFAs) for a maximum of seven years. 

According to the draft guidelines, lenders are only permitted to purchase collateral assets, mostly real estate, when the exposure has been designated as a non-performing asset (NPA) and all other recovery methods have been exhausted. These assets will be shown on balance sheets apart from non-performing assets (NPAs) and may be acquired in full or in part. 

The RBI has required a seven-year outer limit for disposal, with periodic disclosures and revaluation based on distress sale value, to guarantee transparency and prompt resolution. Profit and loss statements must promptly reflect any decrease in value. 

In an effort to minimize abuse and conform to insolvency rules, the framework also prohibits lenders from selling such assets back to defaulting debtors or connected parties. 

These assets will be categorized as fixed assets if they are not sold within the allotted time. 

The proposal’s goal is to increase recovery efficiency while upholding the financial system’s prudential standards. 

Source – Live Mint