The Reserve Bank of India (RBI) has introduced a major rule to stop loan defaulters from buying back properties seized by banks.
Under the new rules, if a bank takes possession of a borrower’s property because of unpaid loans, the defaulter cannot purchase that property again during the auction.
The restriction also applies to the borrower’s relatives, partners, and associated persons.
The rule covers all types of immovable properties, including houses, land, shops, and other mortgaged assets.
Why Has RBI Introduced This Rule?
When a borrower fails to repay a loan, banks have the legal right to seize the mortgaged property and recover their money by selling it through a public auction.
The RBI says allowing defaulters to participate in these auctions could encourage misuse of the system.
According to the central bank, some borrowers may intentionally stop repaying loans if they believe they can later buy back the same property at a lower price during the auction.
The RBI had released draft rules on this issue in May this year.
During the consultation process, some people suggested allowing defaulters to participate in auctions, but the proposal was rejected for this reason.
Banks Must Sell Seized Properties Within 7 Years
The RBI has also laid down strict timelines for banks.
Banks cannot keep seized properties on their books indefinitely.
According to the new rules, they must sell such properties within the time limit set by their board-approved policy.
However, this period cannot be longer than seven years.
The RBI has asked banks to dispose of these properties through public auctions as quickly as possible to ensure transparency and faster recovery of dues.
What Is the Purpose of the New Rule?
The RBI says the main objective is to prevent intentional loan defaults and discourage borrowers from taking advantage of the system.
Earlier, there were concerns that some defaulters could use relatives or associates to buy back their seized properties at lower prices.
In some cases, this allowed them to regain ownership while escaping their loan obligations.
The new rule is expected to:
Prevent deliberate loan defaults.
Stop relatives or associates from buying back seized properties on behalf of defaulters.
Increase transparency in public auctions.
Reduce the chances of collusion between bank officials and loan defaulters.
With these changes, the RBI aims to make the loan recovery process fairer and discourage people from deliberately defaulting on bank loans.