Budget 2026: Lenders call for uniform SARFAESI rules to give boost to rural housing credit

A more predictable recovery process, they argue, would encourage banks to explore deeper into the countryside

• Inconsistent SARFAESI rules slow rural loan recovery and raise lending risks
• Experts urge harmonising SARFAESI for NBFCs to boost rural housing finance
• Budget 2026 could liberalise branch norms and lower gold loan costs for NBFCs

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Harmonising the rules under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has emerged as a significant issue for rural housing finance ahead of Budget 2026.

Lenders say inconsistent enforcement across states slows loan recovery, raises risks and makes banks hesitant to lend in villages and small towns. For borrowers, this often results in fewer options, higher interest rates and long delays in approving home loans.

“We recommend budgetary measures for more credit supply to the rural and lower middle-income segments in India. To achieve this, the Union Budget 2026 can include measures for liberalising branch-opening norms for gold loan NBFCs to accelerate outreach and deepen market penetration, especially for secured gold loans which carry relatively lower risk,” Muthoot FinCorp Ltd CEO Shaji Varghese said.

Rationalising capital risk weights for gold loans by NBFCs can lower lending costs and promote increased credit flow to rural and semi-urban markets.

Harmonising SARFAESI Act applicability for NBFCs in line with banks and housing finance companies (HFCs) will help drive rural housing credit and strengthen recovery mechanisms for smaller-ticket mortgage loans, Varghese said.

It should also offer targeted schemes to ensure customers who experienced temporary or one-time credit default are not permanently excluded from formal banking channels . The Budget should also promote formalisation of gold lending by encouraging policy reforms that shift activity from informal channels to regulated institutions and strengthen consumer protection, he said.

The SARFAESI Act authorises banks and financial institutions to recover non-performing assets (NPAs) without the intervention of courts. It enables lenders to seize, manage and auction secured properties, residential and commercial, to recover loans if a borrower defaults, typically after a 60-day notice period.

"The Union Budget 2026 can play a meaningful role by deepening domestic liquidity and strengthening risk-sharing frameworks such as credit guarantees and co-lending structures. These measures can help lower borrowing costs, support longer and more predictable tenures, and create repayment structures that offer greater certainty to borrowers," Godrej Capital MD & CEO Manish Shah said.

Encouraging stable long-term savings and recognising high levels of tax compliance can further strengthen the funding base of the financial system and reinforce trust in formal participation. "The objective is not just to build a larger financial ecosystem, but a more resilient and efficient one, where capital flows productively, risk is shared responsibly and finance supports India’s next phase of inclusive and sustainable growth,” Shah said.

As the government looks for ways to promote affordable housing and increase formal credit in rural areas, experts say clearer and standardised SARFAESI rules can enable lending opportunities. A more predictable recovery process will encourage banks to explore deeper into the countryside, where housing demand is growing but access to finance remains limited, they say.