One Time Settlement (OTS): A Complete Guide for Borrowers in 2026

What is One Time Settlement (OTS)?

A One Time Settlement is a negotiated agreement between a borrower and a lender to close a non-performing loan account by paying a lump-sum amount lower than the total outstanding dues. OTS is recognised under RBI guidelines and most banks and NBFCs have published OTS policies for stressed accounts.

When OTS is usually possible

• The account is classified as NPA (sub-standard, doubtful, or loss).
• The borrower can demonstrate genuine financial distress.
• The lender's recovery prospects through legal action are limited or slow.
• The proposed amount covers the bank's economic value of security and recovery costs.

A realistic OTS range

Most OTS approvals in India settle between 55%–80% of the principal outstanding, depending on the asset class, collateral, age of the NPA, and the borrower's repayment capacity. Unsecured accounts may settle lower; well-secured accounts settle higher.

The OTS process

1. Eligibility check and document review
2. Drafting the OTS proposal with financial justification
3. Submission to the appropriate sanctioning authority
4. Negotiation rounds
5. Sanction letter and payment within stipulated time
6. No-Dues Certificate and CIBIL update request

What to avoid

• Verbal commitments without sanction letters
• Paying upfront before written acceptance
• Ignoring tax implications under Section 28 / Section 41
• Missing the payment deadline mentioned in the sanction

This article is for educational purposes. Outcomes depend on case-specific facts.