Restructuring and One-Time Settlement (OTS)
Change the terms or settle and exit. Here is how RBI's rules treat each, and how a banker weighs an OTS offer.
When a borrower cannot repay on the original terms, a bank has two broad choices short of legal action. It can restructure the loan and keep the relationship, or it can settle the account for a lump sum and walk away. The second is what branches call a one-time settlement (OTS); RBI's term is compromise settlement.
RBI's rules for both now sit in the Commercial Banks (Resolution of Stressed Assets) Directions, 2025, issued on 28 November 2025, which carried forward the June 2019 Prudential Framework.
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Key Terms, in RBI's Words
- Restructuring
- An act in which a bank, for economic or legal reasons relating to the borrower's financial difficulty, grants concessions to the borrower. It usually means changing the repayment period, amount, instalments or interest rate, rolling over credit, or adding finance to cure a default.
- Compromise settlement
- Any negotiated arrangement with the borrower to fully settle the bank's claims in cash. It may involve a sacrifice by the bank, with a matching waiver of its claim.
- Technical write-off
- Writing off an NPA in the bank's books for accounting purposes only. The loan stays outstanding at the borrower's account level and the bank keeps its full right to recover.
- Monitoring period
- From implementation of the resolution plan until at least 10% of the restructured principal (plus any capitalised interest) is repaid.
- Specified period
- From implementation until at least 20% of that amount is repaid.
What Restructuring Does to Asset Classification
| Before restructuring | After restructuring |
|---|---|
| Standard | Downgraded at once to NPA (substandard to begin with) |
| NPA | Keeps the same classification, and continues to age under the IRAC norms |
| Additional finance under the plan | May be treated as standard during the monitoring period if the account performs |
Getting Back to Standard
- 1
Perform through the monitoring period
Every facility must show satisfactory performance, meaning no default with any lender, until 10% of the restructured debt is repaid.
- 2
Wait at least a year
No upgrade before one year from the start of the first payment of interest or principal on the facility with the longest moratorium.
- 3
Large accounts need a rating
Where lenders' aggregate exposure is ₹100 crore or more, the borrower's facilities must also be rated investment grade (BBB- or better): one rating below ₹500 crore, two at ₹500 crore and above.
- 4
If it fails
A borrower that cannot perform through the monitoring period needs a fresh restructuring or a change in ownership, or goes to the IBC, and the bank makes an additional provision of 15%.
Who Cannot Be Restructured
Borrowers who have committed fraud, malfeasance or wilful default, and any entity linked to a wilful defaulter, are ineligible for restructuring. A wilful defaulter becomes eligible only after its name is removed from the list of wilful defaulters. Compromise settlement, by contrast, is allowed with such borrowers under stricter approval, because it ends the bank's exposure instead of continuing it.
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Compromise Settlement (OTS): The Rules
| Rule | Detail |
|---|---|
| Not a right | Settlement is the bank's discretion, based on commercial judgement. Its aim is to maximise recovery at minimum expense. |
| Board policy | Each bank needs a Board-approved policy for settlements and technical write-offs, covering conditions such as minimum ageing and fall in collateral value, and staff accountability. |
| Who approves | An authority at least one level higher than the one that sanctioned the loan. Settlements with fraud or wilful default borrowers need the Board's Management Committee, or the Board. |
| Payment time | If the agreed amount is paid over more than three months, the settlement is treated as restructuring. |
| Part settlement | Settling only part of the dues counts as restructuring, not compromise. |
| Cooling period | Before lending to the same borrower again: at least 12 months for non-farm exposures, longer if the bank's policy says so. Farm credit cooling periods are set by the bank's policy. |
| Reporting | Settlements and write-offs approved by an authority are reported to the next higher authority at least quarterly; those approved at MD and CEO or Board committee level go to the Board. |
Is the OTS Offer Worth Taking? An Illustration
A doubtful account with ₹50 lakh outstanding. The borrower offers ₹32 lakh, payable within two months. The bank estimates a SARFAESI sale would fetch ₹34 lakh in two years, with ₹2 lakh of costs. It discounts at 10% a year.
Accept the OTS
Working
₹32 lakh within two months
Value today
About ₹32 lakh
Enforce security
Working
(34 − 2) ÷ 1.1² = 32 ÷ 1.21
Value today
About ₹26.4 lakh
Sacrifice on the OTS
Working
50 − 32
Value today
₹18 lakh
| Option | Working | Value today |
|---|---|---|
| Accept the OTS | ₹32 lakh within two months | About ₹32 lakh |
| Enforce security | (34 − 2) ÷ 1.1² = 32 ÷ 1.21 | About ₹26.4 lakh |
| Sacrifice on the OTS | 50 − 32 | ₹18 lakh |
On these numbers the settlement recovers more in present value than enforcement, despite the ₹18 lakh sacrifice. Had the borrower asked to pay the ₹32 lakh over six months, the arrangement would be treated as restructuring, not a compromise settlement.
Schemes That No Longer Exist
The CCP syllabus still lists some older mechanisms. RBI withdrew them in its 7 June 2019 framework:
- check_circleCorporate Debt Restructuring (CDR) scheme.
- check_circleStrategic Debt Restructuring (SDR) and change in ownership outside SDR.
- check_circleScheme for Sustainable Structuring of Stressed Assets (S4A).
- check_circleFlexible structuring of existing long-term project loans.
- check_circleJoint Lenders' Forum (JLF) as a mandatory mechanism. Inter-creditor agreements replaced it.
MSMEs Follow a Separate Framework
Revival and rehabilitation of MSMEs is governed by RBI's framework of 17 March 2016, not the Review Period and inter-creditor rules of the main directions. Smaller MSME accounts (aggregate exposure below ₹25 crore) also get a gentler test of satisfactory performance after restructuring: no dues over 30 days, and a cash credit balance not above the limit or drawing power for more than 30 continuous days.
FAQs
What happens to a standard account when it is restructured?expand_more
It is downgraded at once to NPA, substandard to begin with. It can be upgraded only after satisfactory performance through the monitoring period and at least one year from the first payment under the plan.
What is the difference between OTS and restructuring?expand_more
OTS (compromise settlement) closes the account for a cash payment, often with a sacrifice by the bank. Restructuring keeps the loan alive on changed terms. A settlement paid over more than three months is treated as restructuring.
Can a bank lend again to a borrower after an OTS?expand_more
Only after a cooling period set by its Board policy. For non-farm exposures it cannot be less than 12 months.
Does a technical write-off cancel the borrower's debt?expand_more
No. It removes the loan from the bank's books for accounting only. The borrower still owes the full amount and the bank keeps its right to recover.
Is the CDR mechanism still available?expand_more
No. RBI withdrew CDR, SDR, S4A and related schemes in its 7 June 2019 Prudential Framework, and discontinued the Joint Lenders' Forum as a mandatory mechanism.
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