Specified Non-Financial Assets (SNFAs)

Context

The Reserve Bank of India (RBI) has notified a prudential framework for Specified Non-Financial Assets (SNFAs) to standardise the acquisition, valuation, accounting, and disposal of immovable properties acquired by banks in settlement of defaulted loans.

About SNFAs

1. Specified Non-Financial Assets (SNFAs) are a new asset category introduced under the Commercial Banks – Resolution of Stressed Assets Directions, 2025 (Third Amendment Directions, 2026).
2. They are immovable properties transferred to banks in full or partial settlement of Non-Performing Assets (NPAs).
3. These assets are held solely for loan recovery and do not form part of banks’ normal business operations.

Examples: Residential buildings, commercial properties, industrial land, warehouses, and other immovable assets transferred against outstanding loan dues.

Need for the Framework

The framework was introduced to address:

1. Non-uniform valuation of acquired properties.
2. Delays in disposal of non-core assets.
3. Inconsistent accounting and disclosure practices.
4. Absence of a uniform policy governing their acquisition and disposal.

It seeks to establish a consistent regulatory approach for managing such assets while improving the recovery of stressed loans.

Key Features

Acquisition

An asset will qualify as an SNFA only if:

1. The borrower’s account has been classified as an NPA.
2. The property is transferred in full or partial settlement of the outstanding loan.
3. Legal ownership of the property has been transferred to the bank.

Where only part of the outstanding loan is settled through property transfer, the remaining exposure will continue to be treated as a restructured loan under the applicable prudential norms.

Valuation

1. An SNFA will be valued using the lower of:

1. 1. The net book value of the loan extinguished through the property transfer; or
   2. The distress sale value assessed independently by at least two external valuers.

1. This ensures realistic valuation and prevents overstatement of asset values.

Board-approved Policy

Every commercial bank must adopt a Board-approved policy covering:

1. Eligibility criteria for acquisition.
2. Delegation of approval powers.
3. Recovery measures before acquisition.
4. Limits on SNFA exposure.
5. Disposal strategy and timelines.

The policy should ensure that acquisition of immovable assets remains an exceptional recovery measure.

Disposal

1. Banks must dispose of SNFAs as early as possible and, in any case, within seven years from the date of acquisition.
2. Disposal should primarily be through public auction in accordance with the SARFAESI Act, 2002, ensuring fair price discovery and competitive bidding.
3. SNFAs cannot be sold to:
   1. The original borrower.
   2. Related parties as defined under the Insolvency and Bankruptcy Code (IBC), 2016.

This safeguard prevents defaulting borrowers from regaining repossessed assets through direct or indirect means.

Accounting and Reporting

1. SNFAs will not be treated as Gross NPAs, Net NPAs, or stressed assets, and will not affect the Provisioning Coverage Ratio (PCR).
2. They must be disclosed separately in banks’ balance sheets under “Non-banking assets acquired in satisfaction of claims.”
3. Banks must annually report details of acquisitions, disposals, age-wise classification, and assets retained for own use through the RBI’s Centralised Information Management System (CIMS).
4. The framework will come into effect on 1 October 2026. Existing SNFAs held as on 30 September 2026 must be aligned with the new framework by 30 September 2027, providing banks with a one-year transition period.

Significance

1. Introduces uniform regulatory standards for managing immovable assets acquired during loan recovery.
2. Brings consistency to valuation, accounting, disclosure, and disposal practices.
3. Facilitates timely disposal and monetisation of non-core assets.
4. Protects the integrity of the recovery process by restricting resale to borrowers and related parties.
5. Strengthens the stressed asset resolution framework alongside the SARFAESI Act, the Insolvency and Bankruptcy Code (IBC), and RBI’s prudential regulations.

Conclusion

The SNFA framework provides a structured approach for managing immovable assets acquired during loan recovery. By introducing uniform standards for valuation, reporting, and disposal, it improves the efficiency of stressed asset resolution, enhances financial discipline, and contributes to a stronger and more resilient banking system.