Urban Co-operative Banks – Resolution of Stressed Assets Third Amendment Directions · RBI/2026-27/191

RBI/2026-27/191 DOR.STR.REC.172/21-04-048/2026-27 July 16, 2026

Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Third Amendment Directions, 2026

Please refer to Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025 (hereinafter referred to as ‘the Directions’).

2. A bank generally does not transact in immovable assets as part of its core business operations, other than in exceptional cases where it acquires such immovable assets in satisfaction of its claims on the borrower. In order to provide clarity on the prudential treatment of such specified non-financial assets including non-banking assets (NBAs), acquired by a bank through various mechanisms, it has been decided to issue prudential norms applicable in such cases.

3. On examination of the feedback received on the draft Directions issued on May 5, 2026 and in exercise of the powers conferred by the sections 20, 21 and 35A read with the section 56 of the Banking Regulation Act, 1949 and all other laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified.

4. These Amendment Directions modify the Directions as under:

i. Paragraph 5(17A) shall be inserted as below:

(17A) ‘specified non-financial asset’ (SNFA) means an immovable asset acquired by a bank in satisfaction or part satisfaction of its claims on the borrower, including non-banking assets (NBAs) acquired in terms of the relevant provisions of the Banking Regulation Act, 1949.

ii. Paragraph 9B shall be inserted as below:

9B. A bank’s policy shall incorporate suitable clauses for acquisition of an SNFA and disposal thereof. Such provisions shall specify inter-alia the limit on SNFAs as a share of total assets, eligibility criteria, delegation matrix, recovery efforts to be explored before acquisition and maximum period for disposal not exceeding seven years.

iii. A new Chapter V-A as under shall be inserted:

Chapter V-A – Prudential Norms on Specified Non-financial Assets

115A. The provisions of this Chapter shall cover all SNFAs including those acquired through bilateral acquisitions or through Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

115B. In respect of any SNFA outstanding in the books of a bank as on September 30, 2026 (‘Legacy SNFAs’), compliance with these Directions shall be achieved latest by September 30, 2027.

115C. An SNFA shall be deemed to have been acquired only if the title of the asset is transferred in the name of the bank, and the bank is in a clear position to deal with the asset on its own.

115D. SNFA shall be acquired only in cases where a bank’s exposures to a borrower is classified as non-performing.

115E. SNFA may be acquired from the borrower against full or partial extinguishment of the bank’s exposure on a non-recourse basis.

115F. Partial extinguishment of exposure shall be treated as restructuring and the residual exposure to the borrower shall attract the prudential treatment applicable to restructuring as contained in these Directions.

A. Valuation

115G. Upon acquisition, SNFA shall be recorded in the balance sheet at the lower of the net book value (NBV) of the extinguished exposure or the distress sale value of the SNFA arrived by at least two independent external valuers.

115H. In case of partial extinguishment, the NBV of the extinguished exposure shall be calculated on a proportionate basis, i.e., as a proportion of the share of extinguished debt. Illustratively:

• Suppose that the loan outstanding as of March 31, 2026 is ₹2 lakhs, on which the bank is maintaining 10% specific provisions. NBV for the total loan is ₹1.8 lakhs.
• Out of the total loan outstanding, say ₹1.5 lakhs (75%) is sought to be extinguished by acquisition of a SNFA, with a DSV of ₹1.4 lakhs.
• Then immediately upon acquisition:
  • Residual value of the loan on the books of the bank shall be reduced to ₹0.5 lakhs with associated specific provision of ₹0.05 lakhs
  • SNFA shall be valued at the lower of (DSV, NBV), where NBV shall be calculated on a proportionate basis, i.e. (75% of 1.8) = ₹1.35 lakhs.

115I. At each subsequent reporting date, the SNFA shall be carried on the balance sheet at the revised NBV. The revised NBV of the SNFA shall be the value of extinguished exposure, net of the notional provisions applicable, had the exposure continued on the books of the bank. In case of partial extinguishment, the revised NBV of the SNFA shall be the extinguished fraction of the NBV of the original exposure.

B. Disposal of SNFAs

115J. A bank shall dispose of the SNFA within the maximum period of disposal as envisaged in the bank’s policy, subject to a maximum period of seven years.

115K. A bank shall make all efforts to dispose of the SNFA at the earliest through a public auction. For the purpose of public auction, a bank shall adhere with the principles of auction enshrined in the SARFAESI Act, 2002.

115L. A SNFA shall not be sold back to the borrower or its related parties. Related parties shall have the same meaning as defined in the Insolvency and Bankruptcy Code, 2016. This restriction on sale back to borrower or its related parties shall continue to be adhered to, even in cases where the SNFA has ceased to be an SNFA in terms of paragraph 115M below.

115M. A SNFA put to the bank’s own use shall cease to be classified as an SNFA from the date of being put to use and shall be recorded under the accounting head ‘Fixed assets’ or under any other relevant accounting head.

C. Disclosure Requirements

115N. SNFAs shall not be included in the total stock of residual exposure / Gross NPA / Net NPA / Stressed exposures / Provisioning Coverage Ratio. The same shall be disclosed under the relevant accounting head in the balance sheet of the bank as ‘non-banking assets acquired in satisfaction of claims’.

115O. A bank shall report the details of the SNFAs as per the formats provided in the Annex-3, in CIMS portal.

6. These Directions shall come into force with effect from October 1, 2026.

(Vaibhav Chaturvedi) Chief General Manager