Corporate Loan Settlement in India: OTS for Exposures Above ₹1 Crore

The commercial logic of a settlement never changes: a bank accepts less than the book outstanding because the discounted, risk-adjusted, time-adjusted value of what it can actually recover through enforcement is lower than what you are offering today. What changes with ticket size is who has to be convinced, how the decision is documented, and how much personal accountability the approving officer carries if the file is later questioned by vigilance or the CVC.

That last point governs everything. A general manager approving a ₹30 crore haircut is signing a document that an auditor may examine for a decade. They will not sign it on the strength of a hardship narrative. They will sign it when the file itself demonstrates — with valuations, comparative recovery workings and legal opinions — that no realistic enforcement path yields more. Your job in a high-value settlement is not to plead. It is to build that file for them.

This is also why high-value proposals fail on process rather than price. The number offered is often acceptable; the file supporting it is not. Missing valuation, stale balance confirmation, unresolved guarantor position, or an unexplained related-party transfer will stall a file indefinitely even when the sacrifice percentage is well within the bank's comfort.

Banks do not benchmark a settlement against the outstanding shown in your statement. That figure includes unapplied interest, penal interest and charges that the bank has often already reversed against provisions. The working benchmark is the Realisable Value of Security — the amount the bank believes it can convert the charged assets into, net of enforcement cost and time.

A typical committee note computes: RVS as assessed by two independent valuers; less expected enforcement cost (auction expenses, legal fees, security and maintenance of the asset, roughly 8–15% for industrial property); less a time discount reflecting the 24–48 months an enforcement usually takes; plus the assessed net worth realisable from guarantors. The resulting figure is the floor. Your proposal has to clear that floor, not the book value.

This is why a well-evidenced valuation is the highest-leverage document in the entire file. A ₹22 crore industrial property valued at ₹34 crore by an optimistic panel valuer will price your settlement out of reach. A properly instructed valuation reflecting actual marketability — single-use plant, restrictive zoning, encroachment, effluent-treatment liability, absent approach road — legitimately moves the floor by crores.

Settlement is one of four instruments, and it is not automatically the best one for a large exposure. If the underlying business is operationally viable and the distress is cash-flow timing rather than solvency, restructuring preserves far more value than a settlement funded by asset sales. If the promoter cannot fund a lump sum but a third party can, an ARC assignment followed by a negotiated resolution with the ARC frequently produces a better economic outcome than a direct bank settlement.

If the company is a corporate debtor with default above the ₹1 crore threshold under Section 4 of the IBC, insolvency is not merely a risk to be avoided — it is a bargaining fact that shapes the bank's own arithmetic. A bank knows that in a CIRP its recovery is subject to the resolution plan, the waterfall under Section 53, and a process it does not control. A credible, documented comparison of what the bank realises under each route is the most persuasive argument a corporate settlement file can carry.

The instrument you choose also determines who must approve on your side. A settlement requires a board resolution and, for a listed entity, disclosure obligations. A scheme of arrangement requires NCLT sanction and creditor class approvals. Choosing an instrument without mapping your own governance path is how corporate resolutions lose six months.

The single most common reason a large settlement stalls is an incomplete file. Unlike a retail settlement, where a letter and a payment plan can suffice, a corporate proposal must survive independent scrutiny. Assemble the file before you make the first approach — a proposal submitted and then supplemented over four months signals disorganisation and invites the committee to defer.

Beyond the standard financials, three documents disproportionately determine outcome: an independent valuation properly instructed on marketability rather than replacement cost; a comparative recovery analysis quantifying the bank's realisation under SARFAESI, DRT and IBC; and a clean, funded source-of-funds statement. A settlement offer without a demonstrable funding source is treated as an option, not a proposal.

A settlement extinguishes the debt on the terms written in the sanction letter — and nothing else. Where promoters have given personal guarantees, and where group companies have given corporate guarantees, those obligations are independent contracts. Settling the principal borrower's liability does not automatically discharge them. Banks have proceeded against personal guarantors under Part III of the IBC after settling the corporate exposure, entirely lawfully, because the settlement letter never released the guarantee.

Equally important is what happens to security. The settlement letter must specify the timeline for issuing a No Dues Certificate, releasing original title deeds, filing satisfaction of charge with the ROC under Section 82 of the Companies Act, and vacating the CERSAI registration. Without dated obligations, companies find themselves fully paid but unable to sell or refinance the asset months later because the charge remains on record.

Finally, insist on clarity on credit reporting. A large corporate settlement will be reported to CIBIL and to the CRILC database, and CRILC reporting affects your ability to raise credit across the entire banking system. The reporting language is negotiable at the drafting stage and effectively immovable afterwards.