OTS full form in banking is One Time Settlement. It is a process through which a borrower and lender agree on a one-time payment to settle a loan or outstanding dues, typically at a reduced amount. OTS is a valuable tool for both borrowers and banks, especially when a borrower is facing financial difficulties and is unable to repay the entire loan amount.
How One Time Settlement Works?
In an OTS agreement, the borrower and the bank negotiate the terms, including the amount to be paid, which is usually lower than the original outstanding balance. This settlement helps the borrower clear the debt in one go, while the bank can recover a part of the loan that may otherwise become a non-performing asset (NPA). The process is generally applicable for both secured and unsecured loans, including personal loans, business loans, and home loans.
Eligibility for OTS
The eligibility for availing an OTS agreement depends on factors such as:
- Loan Default Duration: Banks typically offer OTS only after the borrower has defaulted for a certain period, usually between 6 months to 2 years.
- Loan Type: OTS is more commonly applied to loans that are at risk of becoming NPAs.
- Borrower’s Financial Situation: The borrower’s current financial condition, including their ability to repay, is assessed before offering an OTS agreement.
Benefits of OTS
- Debt Relief: For borrowers, OTS offers a way to clear the debt with a reduced payment, preventing further financial strain.
- Avoids Legal Action: OTS helps borrowers avoid the legal consequences of loan defaults, such as asset seizure or court cases.
- Clearing NPAs: For banks, OTS helps in reducing the number of NPAs, improving their financial health.