What is Source of Funds (Settlement)?
Source of Funds is the documented plan showing how the borrower will fund the settlement amount — from own savings, asset sales, family contributions, take-out finance or fresh investor capital. Banks typically need credible source-of-funds before sanctioning OTS.
| Meaning | Source of Funds is the documented plan showing how the borrower will fund the settlement amount — from own savings, asset sales, family contributions, take-out finance or fresh investor capital. Banks typically need credible source-of-funds before sanctioning OTS. |
|---|---|
| Category | Settlement & Recovery |
| Related Laws | RBI master directions, SARFAESI Act 2002, RDB Act 1993, IBC 2016 (as applicable). |
| Who Uses It | Borrowers, banks, advisors |
| Why It Matters | Credibility-check for the OTS offer. |
Source of Funds (Settlement) explained in plain English
A practitioner's view written for borrowers and advisors — not a textbook definition.
Source of Funds is the documented plan showing how the borrower will fund the settlement amount — from own savings, asset sales, family contributions, take-out finance or fresh investor capital. Banks typically need credible source-of-funds before sanctioning OTS.
In practice, Source of Funds (Settlement) is used most often by borrowers, banks, advisors. Each of them sees the term from a slightly different angle: borrowers care about protection and outcomes, lenders care about classification and recovery, regulators care about consistency and disclosure.
Source of Funds (Settlement) is shaped by RBI master directions and India's recovery laws — primarily the SARFAESI Act 2002, the RDB Act 1993 and the IBC 2016 — and case-specific application matters far more than textbook reading.
Why does it matter? Credibility-check for the OTS offer. For a stressed borrower, getting this concept right early often saves several months of penal interest, legal cost and credit-score damage.
A real example: Borrower documents ₹40 lakh from sale of inherited property and ₹30 lakh from family. The mechanics may look complex, but the underlying logic — the bank wants closure, the borrower wants a fair outcome — is straightforward once the right framework is in place.
If you are facing a situation involving Source of Funds (Settlement), the safest first step is a structured case review with a senior ex-banker who has handled comparable matters across banks and ARCs in India.
Where you'll encounter Source of Funds (Settlement)
Whenever a loan moves from "Standard" to "stressed", Source of Funds (Settlement) is one of the words that starts appearing in notices, bank emails and lawyers' opinions.
Sanctioning committees, recovery teams and risk officers use Source of Funds (Settlement) to classify accounts, decide provisioning and approve resolution paths.
Source of Funds (Settlement) appears in pleadings, securitisation applications, OAs, Section 7/9 petitions and SARFAESI writs as part of the dispute record.
When stressed loans are sold to ARCs or special-situations investors, Source of Funds (Settlement) is used in term sheets, assignment agreements and due-diligence reports.