JSA Prism | Finance | July 2026

Please click here to download the Prism as a PDF.

Reserve Bank of India issues prudential norms for treatment of Specified Non-Financial Assets

The Reserve Bank of India (“RBI”), on July 16, 2026, issued the RBI (Commercial Banks – Resolution of Stressed Assets) Third Amendment Directions, 2026 (“Stressed Assets Amendment”) on prudential norms on Specified Non-financial Assets (“SNFA”). Consequent to the Stressed Assets Amendment, the RBI has also issued the RBI (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Second Amendment Directions, 2026 on July 16, 2026 (“Provisioning Amendment”) to insert a new chapter in connection with income recognition in case of acquisition of SNFA. The aforesaid amendments are set to come into force with effect from October 1, 2026. The RBI has notified similar amendments for other regulated entities as well.

Salient features of the Stressed Assets Amendment and Provisioning Amendment

What is SNFA?

Immovable assets including non-banking assets, acquired by a bank, on a non-recourse basis, through various mechanisms, in satisfaction of its claims from the borrower whose exposure is classified as Non-performing Asset (“NPA”).

Acquisition and disposal of SNFA

Banks are required to update their policy to incorporate suitable clauses for acquisition and disposal of an SNFA.
A SNFA will 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.
Upon acquisition, SNFA will be recorded in the balance sheet at the lower of the net book value of the extinguished exposure or the distress sale value of the SNFA arrived by at least 2 (two) independent external valuers.
As banks cannot deal in immovable assets, the bank must dispose-off the SNFA within a maximum period of 7 (seven) years. The bank may sell the said assets through a public auction by adhering the principles of auction provided under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Banks are not allowed to sell SNFA back to the borrower or its related parties.
A SNFA put to the bank’s own use will cease to be classified as an SNFA from the date of being put to use and will be recorded under the accounting head ‘Fixed assets’ or under any other relevant accounting head.
In respect of any SNFA outstanding in the books of a bank as on September 30, 2026, compliance with the provisions of the Stressed Assets Amendment is required to be achieved by September 30, 2027.

Accounting treatment in relation to SNFA

Any income received from an SNFA will be recognised in the income statement as ‘non-interest/other income’, in the financial year in which it is realised.
Any expense incurred towards upkeep of an SNFA will be accounted for in the income statement in the financial year in which it is incurred.
Any accrued but unrealised interest and/or charges from the extinguished exposure pertaining to periods prior to acquisition of an SNFA, will not be recognised as income upon acquisition of the SNFA.
It has been clarified that SNFAs will not be included in the total stock of residual exposure/gross NPA/net NPA/stressed exposures/provisioning coverage ratio.
Partial extinguishment of exposure will be treated as restructuring and any residual exposure to the borrower will attract the prudential treatment applicable to restructuring.

Conclusion

The Stressed Assets Amendment and Provisioning Amendment now provides a comprehensive framework addressing disclosure requirements and has streamlined the valuation, accounting and prudential norms governing SNFA.

Banks do not transact in immovable assets in its ordinary course of business and generally acquire SNFA in exceptional cases as part of enforcement of security interest. Such developments will enable the bank to maximise net recoveries from non-core assets, while ensuring transparency and prudence in the recovery process and will assist banks in their balance sheet management.

This Prism has been prepared by: