One-Time Settlement (OTS)

RBI Guidelines on Compromise Settlement and Technical Write-off (2023)

A negotiated settlement between a bank and a defaulting borrower where the bank agrees to accept less than the full outstanding dues in final settlement of the loan account. OTS is governed by each bank's RBI-approved OTS policy. Once an OTS is agreed and the settlement amount is paid, the bank must withdraw all civil and criminal proceedings. OTS amounts are typically 60-80% of outstanding dues, but vary based on the asset quality and negotiation.

An OTS is where a large share of distressed accounts actually conclude, short of full enforcement. In practice the bank, acting under its RBI-approved compromise-settlement policy, agrees to accept a sum below the full outstanding in final closure, and once the settlement amount is paid it must withdraw civil and criminal proceedings and release the security. The practical pitfalls are in documentation and performance: the settlement should be reduced to clear written terms, ideally recorded as a consent decree before the DRT so the bank has an executable instrument if the borrower defaults on the OTS instalments. For the borrower, the prize is a no-dues certificate and an updated credit record; failing to obtain these leaves the matter open. Sanctioning authority and adherence to the bank's policy matter, since an officer cannot settle outside delegated limits. Well-advised parties confirm internal approval and capture the OTS terms in an enforceable form before any payment changes hands.