Non-performing assets or NPA has shown a drastic increase in the past few decades, and it is considered a big threat to the economic growth in India. Post Covid-19, the situation seems to be getting worse.
In view of the various npa management policies being followed by the government to keep it under control, OTS or One Time Settlement is a prime one.
In OTS, the borrower proposes to settle all the dues at one shot and the bank agrees to accept a lesser amount if the payment is made in a single transaction. When banks do the npa account settlement in this way, they have to compromise on a portion of profits.
Still, One Time Settlement is considered better than the other methods of management of Non-performing assets.
The negotiations and settlement are done by the bank under a written policy document for loan recovery. However, it should not be missed that the OTS is not for every NPA account. It is the discretion of the bank to decide whether it should be chosen or not. Obviously, it is not applicable for deliberate defaulters.
What is the impact of OTS?
Whenever a bank goes through the OTS path, there is a dent to the productivity. Hence, it is not an answer to the fundamental problem of NPA.
As far as the benefits of OTS are concerned, then the biggest benefit is the speedy recovery of loans and advances. It increases the liquidity of the bank and an easy flow of funds encourages banks to keep on the lending process.
When NPAs get settled through npa recovery process, the banks, financial institutes maintain good financial health. It further makes the whole economy healthy.
To reduce the npa in india, the government is encouraging One Time Settlement. Big, medium, and small units are benefitting of it. In case of the account not settling through the OTS path, banks or financial institutes are required to involve the legal process. To help this, there are several qualified nclt lawyers india who help the clients. Call an expert npa consultant in india to understand the finer points.