The Reserve Bank of India has introduced a structured prudential framework for Specified Non-Financial Assets (SNFAs) acquired by Non-Banking Financial Companies in settlement of stressed loan exposures. The framework aims to ensure that such assets are acquired, valued, managed and disposed of with proper oversight, transparency and financial prudence.
The revised framework will become effective from October 1, 2026. NBFCs should therefore review their internal policies, recovery mechanisms, accounting practices and existing portfolio of immovable assets before the implementation date.
What Are Specified Non-Financial Assets?
Specified Non-Financial Assets generally refer to immovable assets obtained by an NBFC in full or partial settlement of the outstanding dues of a defaulting borrower. These may include land, buildings, commercial properties, residential premises, industrial units or other immovable assets.
SNFAs are not acquired as part of the normal lending or investment business of an NBFC. They arise during the recovery or resolution of stressed accounts. Therefore, they must be treated as recovery assets and should not be retained indefinitely as long-term investments.
Eligibility for Acquisition
An NBFC may acquire an SNFA only against an exposure that has been classified as non-performing. The framework does not permit NBFCs to use the acquisition of property as a routine settlement mechanism for standard loan accounts.
Before accepting an asset, the NBFC should undertake proper legal and commercial due diligence. The asset’s legal title must be transferred to the NBFC, allowing it to exercise independent control and deal with the property.
Possession without clear title, incomplete documentation or disputed ownership may expose the NBFC to legal, financial and operational risks.
Board-Approved Policy
Every NBFC must establish a comprehensive policy governing the complete lifecycle of SNFAs. The policy should cover:
- Eligibility and conditions for acquisition
- Valuation methodology
- Approval and delegation of authority
- Legal-title verification
- Maintenance and protection of assets
- Monitoring and regulatory reporting
- Recovery measures and disposal timelines
The policy should also specify the responsibilities of the Board, senior management, recovery team, legal department and finance function.
Prudent Valuation
SNFAs should be valued on a conservative basis. The recorded value should generally be the lower of the applicable net book value or distress sale value.
Valuation should consider the asset’s physical condition, location, marketability, legal disputes, encumbrances, statutory liabilities and expected disposal costs. Independent valuation is important because the market value of property may differ significantly from the amount actually recoverable through a time-bound sale.
An inflated valuation may overstate recoveries and provide an inaccurate picture of the NBFC’s asset quality and financial position.
Disposal Within Seven Years
An SNFA must be disposed of within a maximum period of seven years from the date of acquisition.
NBFCs should not wait until the end of the prescribed period to initiate disposal. An asset-specific disposal strategy should be prepared soon after acquisition. Sale methods should be transparent, commercially reasonable and properly documented.
Regular monitoring is essential to identify delays caused by litigation, poor market conditions, title defects, tenancy issues or statutory restrictions.
Treatment of Legacy SNFAs
Assets appearing in the books as of September 30, 2026 will be treated as legacy SNFAs. NBFCs must bring these assets into compliance with the revised framework by September 30, 2027.
The transition exercise should include:
- Preparing a complete inventory of legacy assets
- Verifying ownership and legal documentation
- Obtaining updated valuations
- Reviewing the original acquisition date
- Assessing the remaining disposal period
- Identifying required accounting adjustments
Disclosure and Reporting
NBFCs should maintain separate records for SNFAs and clearly distinguish them from financial assets, investments and fixed assets.
Appropriate disclosure and reporting must be made through the applicable regulatory systems, including CIMS or NHB reporting channels, wherever required. Periodic information should also be placed before the Board and Audit Committee.
Immediate Compliance Priorities
NBFCs should begin by identifying existing SNFAs, updating their Board-approved policies, strengthening title-verification procedures and establishing asset-wise disposal plans. Accounting, recovery, legal and compliance teams must work together to ensure consistent implementation.
