One-Time Settlement for Loans: Clear Rules and Approvals
Last reviewed: November 2026
One-time settlement for loans is a negotiated arrangement in which a lender accepts a reduced cash amount to fully settle a borrower's dues, usually on a stressed or non-performing account. RBI calls it a compromise settlement, and it now sets clear rules on policy, approvals, reporting and cooling periods.
This guide is for heads of collections, CFOs and CROs at NBFCs, banks and fintech lenders. It covers what RBI requires, how to price an offer, and how to run a one-time settlement (OTS) programme with clean approvals and audit trails.
Key Takeaways
- RBI's June 2023 framework for compromise settlements and technical write-offs now sits in the NBFC Resolution of Stressed Assets Directions, 2025.
- Settlements must be approved at least one level above the sanctioning authority, and no one involved in sanction can approve.
- All settlements must be reported to the next higher authority at least quarterly.
- A cooling period of at least 12 months applies before fresh exposure to a settled borrower.
Why Is One-Time Settlement a Leadership Problem?
One-time settlement is a leadership problem because every offer gives up part of the lender's money, and inconsistent offers invite both losses and allegations of favouritism. A strong OTS programme recovers more cash faster while proving every waiver was earned.
RBI's June 2023 Framework for Compromise Settlements and Technical Write-offs now sits, for NBFCs, in the NBFC Resolution of Stressed Assets Directions, 2025. It applies to larger NBFCs under Part A and, with the same paragraphs applied mutatis mutandis, to smaller NBFCs under Part B.
The rules start with a board-approved policy. It must set conditions such as minimum ageing, a graded staff accountability framework, the permissible sacrifice for each category of exposure and a method for valuing security.
Where Do OTS Programmes Go Wrong?
OTS programmes usually go wrong in six places: offer pricing, approval authority, payment timelines, documentation, cooling periods and reporting. Each one is a control the policy must define and the system must enforce.
| Failure Point | What Goes Wrong | Where It Shows |
|---|---|---|
| Offer pricing | Sacrifice decided by negotiation, not policy | Similar accounts settled at very different rates |
| Approval authority | Sanctioning officer approves own settlement | Conflict of interest in audit samples |
| Payment timeline | Instalments stretch past three months | Settlement must be treated as restructuring |
| Documentation | Offer letter terms unclear or unsigned | Disputes when instalments are missed |
| Cooling period | Settled borrower gets a fresh loan too soon | New exposure inside 12 months |
| Reporting | Settlements not reported upward | Gaps in quarterly reports to the next higher authority |
The payment timeline is easy to miss. RBI says a compromise settlement with payment beyond three months is treated as restructuring.
How Do Lenders Run an OTS Programme With Clear Rules?
Lenders run an OTS programme with clear rules through five steps, from eligibility to closure. Each step turns a part of the RBI framework into a system control.
- Eligibility: apply policy conditions such as ageing and collateral status.
- Pricing: calculate the offer from realisable value and permissible sacrifice.
- Approval: route to the right authority, with conflicts blocked.
- Execution: issue the offer letter and track payments to closure.
- Reporting and cooling: report upward and block fresh exposure.
Step 1: Which Accounts Should Be Eligible?
Set eligibility in policy: minimum days past due or NPA ageing, product type, collateral status and exclusions. A borrower has no right to a settlement, so eligibility is a lender decision.
Prioritise accounts where a settlement beats the alternative. Digiqt's collections prioritisation AI agent shows how delinquent accounts can be ranked by recovery likelihood and routed to the right treatment.
Step 2: How Should the Offer Be Priced?
Price every offer against what the lender would recover without it. For secured loans, that starts with the realisable value of the security, which RBI requires the policy to define.
Digiqt's recovery rate prediction AI agent shows how expected recovery can be estimated account by account. That gives a floor below which an offer should not go.
Step 3: Who Should Approve the Settlement?
Route each proposal to an authority at least one level above the one that sanctioned the loan. The system should block anyone who was part of the sanction from approving.
Settlements with borrowers classified as fraud or wilful defaulters need board approval in all cases. They can proceed without prejudice to criminal proceedings already under way.
Step 4: How Do You Execute and Track Payments?
Issue a written offer letter with the amount, due dates and what happens if a payment is missed. Keep the full payment period within three months unless you intend to treat it as restructuring.
If recovery proceedings are pending before a court or tribunal, obtain a consent decree. Track every instalment in your loan management system for NBFC operations until the account closes.
Step 5: How Do You Report and Enforce the Cooling Period?
Report every settlement to the next higher authority at least quarterly. Settlements approved by the MD and CEO or a board-level committee must go to the board.
Block fresh exposure to the borrower for the cooling period in your policy, with a floor of 12 months. Penal measures under the fraud and wilful defaulter rules still apply after settlement.
Could you show an inspector why two similar accounts were settled at different amounts?
Talk to Our Lending Technology Specialists
Visit Digiqt to see how a lending platform built around repayments can carry settlement rules, approvals and tracking.
How Does One-Time Settlement for Loans Work on a Real Account?
On a real account, one-time settlement for loans is a comparison between a certain amount now and an uncertain amount later. In this illustrative scenario, an unsecured personal loan has been non-performing for 14 months, with total dues of ₹5,90,000.
| Component | Amount |
|---|---|
| Principal outstanding | ₹4,80,000 |
| Accrued interest | ₹96,000 |
| Charges | ₹14,000 |
| Total dues | ₹5,90,000 |
The lender estimates, as an illustrative assumption, that legal recovery would bring in about 30% of dues over three years, or ₹1,77,000, less ₹40,000 in legal costs. That leaves about ₹1,37,000, before allowing for the time value of money.
The OTS offer is ₹3,10,000: ₹1,50,000 within 15 days and ₹1,60,000 within 60 days. The sacrifice is ₹2,80,000, about 47.5% of dues, which sits inside the lender's illustrative policy limit for this category.
The loan was sanctioned by a branch credit manager, so a regional credit head with no role in the sanction approves it. The settlement appears in the next quarterly report, and the borrower is blocked from fresh loans for at least 12 months.
The lesson for leadership: the settlement recovers about ₹1,73,000 more than the legal route, and every step is documented. That is the difference between a defensible sacrifice and a discount.
Which OTS Approach Fits Your Lending Model?
The right OTS approach depends on whether loans are secured, how large they are and how many accounts are stressed. High-volume unsecured books need rule-based offers, while large secured loans need case-by-case valuation.
| Situation | Recommended Approach |
|---|---|
| High-volume unsecured personal loans | Rule-based offer bands by ageing and balance, auto-routed approvals |
| Secured loans against property | Offers priced from current realisable value of security |
| MSME loans | Case-by-case review with cash-flow assessment |
| Accounts in court or tribunal | Settlement with consent decree |
| Fraud or wilful defaulter accounts | Board approval, criminal proceedings unaffected |
Should You Offer a Settlement or a Payment Plan?
Offer a payment plan when the borrower can still repay the full amount over time. Digiqt's payment plan optimisation AI agent shows how affordable plans can be generated and ranked by likelihood of completion.
Offer a settlement when full repayment is unrealistic and the settlement beats the alternative recovery. Remember that a plan beyond three months that also waives dues is treated as restructuring.
Where Does Digiqt's Lending Platform Fit in OTS Workflows?
Digiqt's lending platform is built as a custom product covering onboarding, disbursement and repayments, delivered through APIs. The team says it can build a custom lending product or platform in a matter of weeks.
Delivery moves from problem understanding to solution validation, then design, agile sprints, launch and maintenance. The OTS steps above are the kind of repayment-stage rules a lender would specify in that build.
The aim is one loan record that knows the dues, the sanctioning authority and the settlement terms. Approval routing, payment tracking and cooling-period blocks can then run from the same data.
Which Metrics Show an OTS Programme Is Working?
Five metrics show whether an OTS programme is working: settlement recovery rate, average sacrifice, offer acceptance rate, settlement completion rate and cooling-period breaches. Track them by product, ageing bucket and approving authority.
| Metric | Formula | What a Weak Number Signals |
|---|---|---|
| Settlement recovery rate | Cash recovered ÷ total dues on settled accounts | Offers too generous |
| Average sacrifice | Amount waived ÷ total dues, by category | Drift beyond policy limits |
| Offer acceptance rate | Offers accepted ÷ offers made | Offers priced unrealistically |
| Settlement completion rate | Settlements fully paid ÷ settlements agreed | Weak terms or poor follow-up |
| Cooling-period breaches | Fresh loans to settled borrowers within the cooling period | Missing system block |
These numbers belong in your NBFC MIS reporting and alongside your collection efficiency metrics. RBI also expects the board reporting format to show quarter-on-quarter trends and breakups of fraud, wilful default and quick-mortality cases.
Which Mistakes Undermine OTS Programmes?
Four mistakes undermine most OTS programmes, and each shows up in audits.
- Negotiating without a policy floor. Every sacrifice should be traceable to a policy limit.
- Letting the sanctioning officer approve. RBI bars anyone involved in sanction from approving the settlement.
- Stretching payments past three months. The settlement then becomes a restructuring.
- No system block for the cooling period. Settled borrowers reappear through another channel.
What Is Changing Next?
The NBFC Resolution of Stressed Assets Directions, 2025, updated as of 1 October 2026, bring settlements, technical write-offs and restructuring into one instrument. Supervisors can now test the whole resolution trail, from policy to board report, against a single set of rules.
Quick mortality, where loans default soon after disbursal, is one of the breakups RBI expects in settlement reporting. Linking settlements to vintage analysis of the loan portfolio helps show whether sourcing quality is driving settlement volumes.
Want every OTS offer priced, approved and tracked by rules rather than negotiation?
Talk to Our Lending Technology Specialists
Visit Digiqt to see how our lending platform can be built so settlements follow your policy from offer to closure.
