One-time settlement (OTS) with a bank or NBFC: how it works under RBI's 2023 framework
How a one-time settlement of a loan or card works in India: RBI's compromise settlement rules, who approves it, the 12-month cooling period, payment terms and paperwork.
A one-time settlement (OTS) is an agreement in which a bank or NBFC accepts less than your total dues as full and final settlement and gives up its claim to the rest. Indian lenders settle under the RBI's framework for compromise settlements and technical write-offs (circular RBI/2023-24/40 of 8 June 2023, now part of the RBI's 2025 Master Directions on stressed assets). Each lender must have a board-approved policy. That policy sets when a settlement is allowed, how much can be waived and who can approve it, and the approver must be at least one level above the officer who sanctioned the loan. After a settlement, the lender may not give you fresh credit for a cooling period of at least 12 months (for loans other than farm credit). Your credit report will show the account as "settled". Settle only if you genuinely cannot repay in full, and only on written terms.
This guide is part of the overview of debt options.
What the RBI framework actually says
The 2023 framework is addressed to commercial banks (including small finance banks and regional rural banks), co-operative banks, all-India financial institutions and NBFCs (including housing finance companies). Its main points:
| Point | What it means for you |
|---|---|
| Definition | A compromise settlement is a negotiated arrangement to fully settle the lender's claims in cash, which may involve giving up part of the amount due |
| Board-approved policy | Each lender sets its own conditions, such as how long the account has been overdue, the value of any security and the permitted sacrifice |
| Approval level | Settlements are approved by an authority at least one level higher than the one that sanctioned the loan; a sanctioning officer cannot approve the settlement of that loan |
| Wilful defaulters and fraud | Settlement is possible, but only with board approval and without prejudice to any criminal proceedings |
| Cooling period | No new loan from the same lender for a period set by its board, at least 12 months for non-farm loans |
| Technical write-off | Different from settlement: the lender writes off the loan in its books but keeps the right to recover the full amount |
The framework does not give you a right to a settlement. It only sets the rules lenders follow when they agree to one. The current consolidated text is in RBI's Master Directions on resolution of stressed assets; check it on the RBI website.
Settlement is not the same as write-off
If the lender tells you your loan has been "written off", that usually means a technical write-off. It is an accounting step. Your dues remain, collection continues and the credit report may show "written off", which is also negative. Only a settlement letter that says the lender accepts a stated amount in full and final settlement ends the claim.
How an OTS usually happens
- The account becomes seriously overdue. Most lenders consider settlement only after the loan is classified as a non-performing asset, more than 90 days past due, and often much later. Some lenders run announced OTS schemes for particular loan types.
- An offer arrives, or you ask. It may come from the bank's collections team, a recovery agency or a branch. You can also write asking for a settlement and explaining your hardship.
- Negotiation. The lender's policy sets a floor. You state what you can pay as a lump sum or in a few instalments, backed by evidence.
- Sanction. The settlement is approved internally. Ask for a written sanction or settlement letter before you pay.
- Payment. Pay only to the lender's own account or official link, never to an individual's account.
- Closure. You receive a no-dues or settlement completion letter. The lender reports the account to the credit bureaus as settled.
The checklist for the letter is in how to negotiate an OTS.
What a settlement typically covers
| Component | Usually waived in a settlement? |
|---|---|
| Penal charges and bounce charges | Often waived first |
| Unpaid interest after the account became an NPA | Often partly or wholly waived |
| Overdue regular interest | Sometimes partly waived |
| Principal outstanding | Waived only in deeper settlements |
| Legal costs already incurred | Depends on the lender |
This table describes typical patterns, not rules. Each lender's policy differs.
Worked example (illustrative)
An unsecured personal loan has the following dues:
- principal outstanding ₹2,40,000
- unpaid interest ₹62,000
- penal and bounce charges ₹18,000
- total dues ₹3,20,000
The lender offers a settlement at 65% of total dues, a 35% waiver:
- waiver: ₹3,20,000 × 35% = ₹1,12,000
- settlement amount: ₹3,20,000 − ₹1,12,000 = ₹2,08,000
If you can pay ₹2,08,000 within 30 days, the claim ends. If you can only pay in three instalments, the lender may ask for a higher amount, and missing an instalment may cancel the settlement. Check the letter for what happens then. Try your own figures in the settlement offer calculator, and see more scenarios in worked settlement examples.
Secured loans and OTS
For a home loan or a loan against property, the lender holds security and can enforce it under SARFAESI. Settlements are still possible, but the lender compares your offer with what an auction would realise. Under the framework, the settlement policy must cover how the security is valued. Once the settlement is paid, the lender must release your property documents and remove the charge. For NBFCs, RBI directions require original property documents to be released within 30 days of full repayment or settlement, with compensation of ₹5,000 a day for delays the lender causes. See SARFAESI rights.
When an OTS makes sense, and when it does not
It can make sense when:
- your income has fallen permanently and full repayment is unrealistic even over a longer tenure;
- the dues have grown mainly through interest and charges on a long-overdue account;
- you have a lump sum from family, savings or asset sale that covers the offer;
- you do not expect to need a loan for several years.
Think again when:
- you could repay in full over 2 to 4 more years through restructuring. The restructuring vs settlement guide compares the costs;
- you plan to apply for a home loan soon;
- the offer comes from someone who asks you to pay into a personal or third-party account.
When to consult a professional
Get advice if the settlement covers a secured loan, if you are also a guarantor, if a court or DRT case is pending, or if the waived amount is large and you are unsure of the tax position. A lawyer can check the letter. Your District Legal Services Authority can help if you qualify for free legal aid.
Frequently asked questions
Can I demand an OTS from my bank?
No. The bank decides under its board policy. You can request one in writing, explain your hardship and make an offer. If the bank behaves unfairly or ignores your complaint, you can escalate to the RBI Ombudsman.
Does an OTS cover my co-borrower or guarantor?
Only if the letter says so. Ask for the letter to name all borrowers and guarantors and to state that no further claim will be made against any of them.
Is the settlement amount negotiable after the first offer?
Often yes, within the lender's policy. A lump sum paid quickly usually gets a better offer than instalments.
What if the bank later says I still owe money?
Produce the settlement letter and the payment receipts. Write to the grievance officer. If that fails, complain to the RBI Ombudsman.
Sources
- Reserve Bank of India: framework for compromise settlements and technical write-offs (8 June 2023) and the 2025 Master Directions on resolution of stressed assets
- RBI Complaint Management System: complaints about settlements not honoured
- TransUnion CIBIL: how a settled account appears on your report
