What is OTS in banking?

Hey friend,

When you avail a loan and look at the thick stack of paperwork, you must be wondering about the meaning of a few terms. I did not know anything about OTS in banking until the bank manager explained the meaning and why it is important. Take a look at my answer to know what I learned. 

The full form of the term OTS is One-time Settlement. It is a mechanism employed by lenders/banks to recover money from people who have either made a default payment or have a history of default payments.

In this process, the lender proposes and agrees to OTS. A One-time Settlement amount is selected, this amount is vernally less than the total loan amount that is due. The borrower needs to pay the OTS amount in the stipulated time frame. 

• The Outstanding Principal (OSP) as on the date of NPA is taken. 

• Simple Interest@11%p.a.on OSP for 27 months( i.e. till the date on which account became Doubtful) is added

• Then, any ARO Dues (Expenses till the date of OTS sanction) are added

• In the last step, if any RC Collection Charges exist. They are added here as well. 

It is also properly known as compromise settlement wherein banks recover non-performing assets (NPAs). It is generally considered by companies where they have been defaulting for two-three years.

This is all from my end on OTS in banking. Hope you liked the answer.

I availed of a home loan in 2017, and during one of my visits to my bank, I saw a person settle his debt with OTS. I had no idea about the OTS full form in banking or its meaning, so went through the bank policies online and understood what it is in detail. OTS stands for One Time Settlement. OTS in Loan hence means that the borrower can settle or repay his debt entirely through this method. It is an instrument using which banks recover pending debts from borrowers. 

OTS is an agreement between the borrower and lender where the former agrees to pay the debt within the given time period and stops the lender from taking any legal action against him/her. This OTS amount should be paid within six months from the date it gets approved. I hope the OTS meaning is all clear to you now.

The RBI states that a bank can allow OTS to the borrower if he/she agrees to pay the outstanding debt within the date set. The borrower can pay the amount one at a go or in parts-

• 25% in the first go

• 75% in instalments over a year

Do note that interest is also to be paid in OTS.

These answers should be enough to help you know the OTS full form in banking and also its meaning.