A borrower who fails to service their loan and is incapable of generating adequate resources in the foreseeable future may have recourse to a one-time settlement to pay their dues. Banks need to work toward settling non-performing assets according to RBI’s guidelines, which require them to negotiate and settle outstanding loans based on the value of the assets mortgaged by the borrower. One Time Settlement Funding (OTS) for a loan can be availed of either in part or in full based on the borrower’s requirements, cash flows of the business and the value of collaterals, among other considerations. The settlement plans for NPAs vary by industry: MSME, agro-industries and others, for instance, will have different settlement arrangements.
Though all banks offer OTS scheme, not all borrowers are eligible. Banks exercise discretion in offering to settle accounts, forbidding wilful defaulters from exploiting the scheme. Lending institutions may deny a borrower's request for OTS if they believe they would be able to fully recover the principal and interest components of the loan. On the other hand, if the value of the mortgaged assets falls short of the amount owed, or if the lender believes that the business will fail to generate adequate revenue to repay the debt, the bank may opt to make a one-time settlement offer.
These settlements are frequently preceded by forensic audits, so one should make sure that all financial documents are in place and that nothing questionable, such as diversion of funds, is waiting to be discovered.
One Time Settlement Funding (OTS) can help address concerns, such as litigations, undesirable costs, and other apparent challenges. Financial firms assisting with the process often leverage their relationship with banks to negotiate favourable terms for settling these accounts. Besides assisting with funding requirements, these firms can also help borrower’s monetise their assets and improve the cash flows of the business by reducing its debt burden.
Resurgent India’s assorted financial consulting options for debt transactions include distressed assets funding, navigating bankruptcies (under IBC 2016) and one-time settlement (OTS). Our deep domain experience in complex debt transactions, a coveted talent pool of senior bankers and long-standing relationships across upper echelons in private and state-run banks allow us to help our clients manage their special needs.
