One Time Settlement is one of the most common ways to close a stressed farm loan. This guide explains what OTS is, how a proposal is prepared, and what to realistically expect.
What is a One Time Settlement?
In an OTS, the bank agrees to accept a single reduced payment to fully close a loan account that has become an NPA. The waived portion typically covers part of the accrued interest and penalties rather than the core principal.
OTS is attractive because it draws a clear line under the debt — once paid and documented, the account is closed.
How an OTS proposal works
You (or your advisor) submit a written proposal stating the amount you can pay and the hardship behind the request. The bank evaluates it against its internal policy and the recoverable value of any collateral.
A realistic offer, supported by documents, is far more likely to be considered than an unrealistically low figure.
Setting realistic expectations
The bank is not obligated to accept any specific figure, and approval sits with a sanctioning authority. Arrange your funds before applying so you can pay within the deadline if the OTS is approved — approved settlements often lapse if payment is late.
Frequently asked questions
Who decides the OTS amount?
The bank does, based on its policy and the value of any security. You can propose a figure, but the final amount is the bank's decision.
What happens if I miss the OTS payment deadline?
An approved OTS usually lapses if you don't pay in full within the stated period, and the original dues can be reinstated. Arrange funds before applying.
Does OTS remove the loan from my credit history?
No. It closes the account, but it is typically reported as 'settled', which lenders view differently from 'closed/paid in full'.