One Time Settlement

Full form: OTS

Loans & Credit

One Time Settlement (OTS) is a negotiated arrangement where a lender accepts a lump sum less than the total outstanding loan balance to close a non-performing account. Banks use OTS to recover a portion of stuck loans rather than going through lengthy legal processes.

In detail

OTS process:n1. Account must be NPA (non-performing asset)n2. Borrower or guarantor proposes settlement amount (usually 50-80% of principal)n3. Bank evaluates and may negotiate upwardn4. On acceptance: full payment within agreed timelinen5. Bank issues No Objection Certificate (NOC) and closes accountnnCRIBIL impact: OTS is reported as "Settled" in CIBIL report -- different from "Closed." A "Settled" status is a negative mark visible for 7 years. Banks will not give new loans for 2-5 years after OTS.

Formula

OTS offer = Principal outstanding x Settlement % (typically 50-80%)

Real-life example

🇮🇳 India example

Meena's business loan of Rs 20L outstanding (Rs 14L principal + Rs 6L interest+penalties) is NPA for 2 years. She offers Rs 9L OTS. Bank counters Rs 12L. Settlement at Rs 11L. She pays Rs 11L, gets NOC. CIBIL shows "Settled" for 7 years -- affecting future loan eligibility.