—Guide
One-time Settlement With Banks: How OTS Works and How to Negotiate
How one-time settlements with banks and NBFCs work in India — lender policies, what drives the settlement amount, how to build a credible offer, and the tax and credit consequences.
A one-time settlement (OTS) is a compromise where the lender accepts less than the full outstanding amount to close a stressed loan. For borrowers with NPA accounts, it can end years of recovery pressure. This guide explains how it works.
The Framework
RBI requires banks and NBFCs to have board-approved policies for compromise settlements and technical write-offs. Lenders also run periodic OTS schemes for specific segments. Settlements are approved by authorities within the lender based on the amount involved.
What Drives the Settlement Amount
- The value of security and realistic recovery from enforcement.
- The time and cost of recovery through SARFAESI, DRT or IBC.
- The borrower's and guarantors' means.
- How long the account has been an NPA, and provisions already made.
- The lender's scheme terms.
Building a Credible Offer
- Calculate the dues, including the principal and interest applied.
- Get an independent valuation of the security.
- Show your financial position honestly.
- Show where the settlement money will come from.
- Make an upfront payment with the proposal, as many schemes require.
Negotiation Tips
- Engage early, before enforcement is far advanced.
- Stay in communication; lenders treat silence as bad faith.
- Get the final terms in writing before paying.
- Keep to the payment schedule — defaults can revive the full dues.
Consequences
Settled accounts are reported to credit bureaus as 'settled', which affects future borrowing. Waived amounts can have tax consequences depending on the nature of the loan. Borrowers classified as wilful defaulters face further restrictions.
Getting Help
Think Filing prepares OTS proposals and supports negotiations with lenders.