No buybacks allowed: RBI locks defaulters out of assets banks seize to recover bad loans

Why would a bank ever want to hand a seized property back to the very borrower who defaulted on the loan it was pledged against? The Reserve Bank of India has decided the answer is: never again. New directions effective Oct 1, 2026 permanently bar defaulters and their related parties, as defined under the Insolvency and Bankruptcy Code, 2016, from repurchasing assets that lenders acquired to recover their debt.

The ban is designed to be airtight. Even if a bank later reclassifies the seized asset or puts it to an entirely different use down the line, the original defaulter and anyone connected to them still cannot buy it back from that bank or finance company.

Getting to the point of acquiring an asset in the first place will now be harder for banks too. The RBI wants board-approved policies in place that cap the share of a bank’s total assets that can be non-financial property, set eligibility criteria, define who signs off at each stage, and require documented recovery efforts before any acquisition proceeds. Only accounts already classified as non-performing assets qualify.

Banks can book such an asset only once legal title has fully transferred to them and they hold complete control over it, and once they do, a seven-year clock starts: the property must be sold off through public auctions run on Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act principles. Assets banks are already sitting on as of Sept 30, 2026 get a longer runway, with compliance required by Sept 30, 2027.

Valuation gets standardised too. If a lender keeps hold of the property rather than reselling it immediately, it must be booked at whichever is lower: the net book value of the settled loan, or a distress sale value signed off by at least two independent external valuers.

Perhaps most tellingly for investors, these seized assets can no longer be quietly absorbed into a bank’s headline health metrics — RBI now requires them to be disclosed separately, excluded from gross NPA, net NPA, and provisioning coverage ratio calculations altogether.

Wikimedia Commons/by Pinakpani