The government has decided to further tighten the noose around housing finance defaulters as the Senate has passed the Financial Institutions (Recovery of Finances) Amendment Bill 2026.
Under the new law, banks will be empowered to auction mortgaged properties after the final notice, with the requirement of court approval being removed.
A new legal framework has been introduced for strict action against housing finance defaulters. The bill, passed by the Senate, will come into force after the President’s approval.
Under the legislation, housing finance defaulters will be issued three written notices at 30-day intervals. After the final notice, banks will have the authority to auction the mortgaged property without seeking judicial permission.
The amended law removes the requirement of court approval for property auctions, allowing financial institutions to proceed independently with recovery actions. Banks will also be required to decide on any request for loan rescheduling or settlement within 30 days.
According to the new rules, property auctions can only take place at least 15 working days after the publication of an advertisement, and financial institutions will also be allowed to participate in the bidding process. The borrower will be given a final opportunity to match the highest bid within five working days.
Under the law, banks will be able to seek direct assistance from Deputy Commissioners to take possession of properties, and the DCs will be bound to hand over possession to financial institutions. The amendment further states that banking courts will not be allowed to issue stay orders without hearing the financial institution’s position.
Officials say the move aims to strengthen financial discipline, improve loan recovery rates, and reduce non-performing assets in the banking sector. However, legal experts believe the law may trigger debate over borrower protections and due process safeguards in the coming days.
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