One-Time Settlement Process in Banks
One Time Settlement (OTS) is a financial arrangement between a borrower and a lender (usually a bank or financial institution) where the borrower agrees to pay a lump sum amount, which is less than the total outstanding loan amount, to settle the debt completely. OTS is primarily used for loans classified as Non-Performing Assets (NPAs), where the borrower is unable to repay the full loan due to financial difficulties. This legal contract benefits both parties—the bank can recover part of its dues and reduce bad loans, while the borrower gets relief from ongoing financial and legal obligations related to the loan.
Key Aspects of One Time Settlement (OTS)
Eligibility and Application: OTS is generally applicable to NPAs (both secured and unsecured loans) and excludes wilful defaulters or fraud cases. Borrowers or banks can initiate the OTS process, and banks assess the borrower’s financial condition to determine eligibility.
Negotiation and Settlement Amount: The borrower negotiates with the bank to agree on a settlement amount that is often a discounted partial payment of the total outstanding dues, based on factors like the borrower’s financial condition, age of the debt, and collateral valuation. Banks may also launch special OTS schemes for different borrower segments.
Payment and Timeline: After an agreement, the borrower usually makes a one-time payment or installment(s) within a specified timeframe (often between 3 months to one year). Upon receipt of the settlement amount, the bank issues a No Objection Certificate (NOC) or settlement letter, formally closing the loan account and waiving off the remaining balance.
Benefits for Borrower and Bank: The borrower reduces debt burden, avoids lengthy legal recovery processes, and may become eligible for standard banking services again. The bank cleans up its balance sheets by reducing NPAs, improves fund recovery speed, and frees resources for core activities.
RBI Guidelines: The Reserve Bank of India provides guidelines to standardize OTS processes ensuring transparency, fairness, and time-bound resolutions. Banks are required to have board-approved policies on OTS, maintain transparency in negotiations and document proceedings properly.
One-Time Settlement is a strategic, negotiated debt resolution mechanism mainly for stressed borrowers with NPAs, offering quicker recovery and minimizing losses for banks while providing financial relief and closure to borrowers.
What is One Time Settlement (OTS)?
One Time Settlement (OTS) is a financial arrangement offered by banks or financial institutions to help borrowers settle outstanding loans or debts in a lump-sum payment—usually less than the total amount due.
It’s typically used when the borrower is unable to repay the loan as per the original terms and the account has become a Non-Performing Asset (NPA).
Key Features of OTS
| Feature | Description |
|---|---|
| Purpose | To recover part of the overdue loan amount and close the account permanently. |
| Eligibility | Usually offered to borrowers with NPAs, chronic defaulters, or stressed accounts. |
| Payment Mode | Lump-sum payment (sometimes in 2–3 installments) within a stipulated period. |
| Discount | A concession is given on the interest, penalties, or even a portion of the principal. |
| Legal Impact | Once settled, the lender writes off the remaining dues and releases securities. |
When Can You Opt for OTS?
You can consider applying for OTS if:
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Your loan account is classified as an NPA.
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You’re facing financial hardship (business loss, medical issues, etc.).
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You want to avoid legal proceedings (like SARFAESI or recovery suits).
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You wish to rebuild your credit profile after closing the loan.
How the OTS Process Works
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Application by Borrower
You submit a formal request to the bank for OTS, explaining your situation and offering a specific amount. -
Evaluation by Bank
The bank assesses your financial condition, collateral value, and repayment capacity. -
Negotiation & Sanction
The final settlement amount is negotiated and approved by the bank’s OTS committee. -
Payment & Closure
Once you pay the agreed amount within the given time, the bank issues a No Dues Certificate and releases any pledged assets.
Example
Suppose you owe ₹10 lakh on a business loan.
Due to losses, you can’t repay. The bank offers an OTS for ₹7 lakh.
You pay ₹7 lakh in full — the remaining ₹3 lakh (plus interest/penalties) is waived off, and the loan is marked “settled”.
Benefits of OTS
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Reduces debt burden
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Avoids lengthy litigation
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Frees up collateral/security
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Gives closure to defaulted accounts
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Enables you to start afresh financially
Drawbacks & Credit Impact
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Your credit report will show the loan as “Settled”, not “Closed,” which may negatively affect your CIBIL score.
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You may face difficulty in obtaining fresh loans in the near term.
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It’s not a legal right — banks have discretion to accept or reject your offer.
Tips Before Applying for OTS
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Negotiate smartly — offer a realistic but fair amount.
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Get everything in writing — settlement amount, timeline, and terms.
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Pay only after official approval from the bank’s OTS committee.
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Obtain a No Dues Certificate (NOC) after payment.
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Update your credit report with CIBIL/credit bureaus post-settlement.
Relevant Legal Framework (India)
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RBI OTS Guidelines (for public sector banks)
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SARFAESI Act, 2002 – governs recovery of NPAs
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RBI Prudential Framework for Stressed Assets (2019) – encourages early resolution
Types of OTS Schemes (as per lender)
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Regular OTS: For small NPAs (e.g., under ₹25 lakh)
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MSME OTS: Targeted for micro, small & medium enterprises
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Agriculture OTS: For farm loans in distress
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Corporate OTS: For large accounts with complex exposures
| Aspect | Key Takeaway |
|---|---|
| Meaning | One-time payment to settle a defaulted loan |
| Who offers it | Banks / NBFCs / Cooperative Banks |
| Who benefits | Borrowers unable to repay fully |
| Result | Loan account closed; partial waiver granted |
| Credit Impact | Negative mark but clean closure |
Ajay Gautam Associates: NPA OTS Advisors | NPA OTS Consultants
Ajay Gautam Associates is a premier legal consultancy firm in India, widely recognized for its specialized expertise in loan One-Time Settlement (OTS) advisory and consultation. Led by the distinguished Advocate Ajay Gautam, the firm focuses on navigating the intricate domains of banking and finance law, with a particular emphasis on resolving non-performing assets (NPAs) and debt recovery disputes. Its client-centric approach ensures that both financial institutions and individual borrowers receive strategic, compliant, and effective guidance. Headquartered in Jabalpur, Madhya Pradesh, the firm operates on a pan-India level, handling cases across Debt Recovery Tribunals (DRT), Debt Recovery Appellate Tribunals (DRAT), and higher courts, including the Supreme Court.
Central to the firm’s services is its proficiency in OTS negotiations. Ajay Gautam Associates facilitates mutually beneficial settlements that prevent prolonged legal battles and asset seizures. By structuring OTS proposals, loan restructurings, and compromise arrangements, the firm draws on deep knowledge of RBI guidelines and corporate debt restructuring (CDR) mechanisms. Borrowers benefit from practical strategies to reschedule accounts and prevent business collapse, while lenders are guided through recovery processes with an emphasis on minimizing risks and maximizing recoveries.
The firm’s comprehensive services extend beyond negotiation. Ajay Gautam Associates handles drafting recovery documents, conducting compliance audits, and providing strategic representation in NCLT proceedings. Their transparent communication, coupled with a proven record of favorable outcomes, ensures clients are well-supported at every stage. This holistic approach has positioned the firm as a go-to consultancy for complex financial distress cases, enabling clients to regain financial stability amid regulatory and market pressures.
Ajay Gautam Associates stands out for its innovative approach to legal and financial solutions. Blending traditional advocacy with modern online consultation platforms, the firm makes its services accessible while maintaining high-quality guidance. As NPAs continue to challenge India’s banking sector, their proactive interventions—such as early-stage OTS facilitation and preventive advisory on credit risks—have earned recognition for reducing litigation burdens and fostering sustainable resolutions.
The team, led by Advocate Ajay Gautam, combines strong legal acumen with practical banking insight to create tailored OTS strategies. Their expertise spans case evaluation, lender negotiations, documentation, and representation before DRTs and other authorities. By leveraging professional networks and an in-depth understanding of RBI guidelines, Ajay Gautam Associates helps clients achieve time-bound, cost-effective settlements, often significantly reducing outstanding dues.
Recognized as trusted Loan OTS Advisors and Consultants, the firm emphasizes transparency, ethical advocacy, and result-driven solutions. Whether representing corporate borrowers restructuring large NPAs or individuals resolving personal loan disputes, Ajay Gautam Associates provides complete end-to-end support. The firm balances legal precision with empathy, ensuring each OTS is not only a legal resolution but also a pathway to financial recovery and renewed stability.
Beyond OTS, Ajay Gautam Associates offers comprehensive legal services in banking and finance, property law, civil disputes, and other domains. Their client-centric philosophy, combining ethical practices with a focus on favorable outcomes, has solidified their reputation as a leading legal advisory firm. Clients seeking guidance in loan settlements and related financial disputes benefit from strategic, legally sound solutions that minimize risk and foster long-term financial health.
At its core, Ajay Gautam Associates exemplifies the role of a trusted advisor in India’s financial legal landscape. Their expertise in Debt Recovery Tribunal cases, SARFAESI Act matters, and NPA resolution, coupled with a dedication to client success, makes them an indispensable partner for borrowers and lenders alike. By transforming complex financial challenges into manageable, legally compliant solutions, the firm empowers clients to navigate uncertainty and achieve sustainable outcomes.
