The full form of OTS is “One-Time Settlement” in banking.
What is OTS (One-Time Settlement)?
OTS (One-Time Settlement) is a mutual agreement between the bank & borrower to settle the NPA account outstanding at a reduced amount in a lump sum. Through this, borrowers can settle all their dues at once and at a lower cost. Banks can waive the penal interest & penalties to reduce the total dues & offer a One-Time Settlement.
In banking, this is the most common tool to reduce NPA or stressed loans from their balance sheet. But, it can be an opportunity for the borrower to settle off their unpaid loans at a lower price & revive their other banking facilities and business.
Who is eligible?
- Unpaid loan Accounts with huge interest & penalties levied
- Accounts having a low volume of collateral security or valuation
- Where lenders are legally fighting long to recover their loans
- Borrowers willing to close the loan without further litigation
- DRT or NCLT clients trying to settle with banks
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Process
- OTS Scheme: From Time to time, banks offer an OTS for their borrowers. Public sector banks run an OTS scheme every year for a bunch of their customers. This helps banks in reducing their bad loans & cleans the balance sheets, which increases their credibility.
- Borrower Approach: Borrowers can also approach their banks to request an OTS to settle NPA loans & penalties at a lesser price. He needs to submit a written application on his company letterhead.
- Token Amount: Sometimes, the bank requires a deposit of 5 to 10 % of the OTS requested amount in a no lien account. Otherwise, this amount needs to be submitted upon issuance of the OTS letter. This amount will be adjusted in the total settlement amount.
- OTS Letter: Once the bank accepts the borrower’s settlement application, an OTS letter is issued to him. It is an official letter of settlement amount, mentioning the payment schedule, settlement terms, and timeline of the OTS.
- Payment of OTS: After the issuance of the OTS letter, the client needs to pay the settled amount as per the schedule given. After the full payment, all the legal charges will be withdrawn, and all collateral securities will also be released.
Payment Timeline
The timeline for payment can be decided mutually, and as per the source of funds to service the OTS. It can be from 15 days to 1 year of timeline can be decided.
But, as a general rule, 90 days is a standard timeline for OTS.
Key Points to Learn About OTS
- Settlement amount depends upon the ageing of the NPA account. Generally, older loan accounts can be settled for a lesser amount.
- It also depends upon the valuation of the property’s mortgage. The higher the property value, the lower the chances of a better negotiation.
- One must arrange the token amount before approaching the bank.
- The bank can also accept the sale of the underlying properties to clear the settlement amount.
- Most OTS schemes require payment in one lump sum.
- Some lenders may allow payment in a few instalments within a specified period.
- A settled account may be reported as “Settled” rather than Closed. This can negatively affect your credit score and future loan eligibility.
- Collect the loan closure letter and “No Dues Certificate” after the full payment of the OTS.
Benefits
- Quick resolution of debt
- Reduction in financial liability
- Securing the hard-earned properties from the recovery process
- Withdrawal of legal cases
- Opportunity to rebuild the financial strength & business
Conclusion
OTS (One-Time Settlement) can be beneficial for both the bank and the borrower. The bank can reduce its overall NPA ratio, and borrowers have the advantage of closing high loan dues at a lower value and come out of legal issues to save their precious properties.