In our review of One-Time Settlement cases that reached Hectogon after an initial rejection, 67 percent of proposals were sent back by the bank’s recovery department for one of four recurring documentation errors, not for any dispute over the settlement amount itself. Each error is procedural, surfaces before the recovery committee ever reaches a commercial assessment, and is preventable if the proposal is built against the bank’s actual checklist rather than a generic template.

That distinction matters more than most borrowers realise. A bank’s recovery team does not have the discretion to accept an incomplete proposal, however reasonable the settlement figure inside it. If your OTS submission comes back with a vague rejection letter citing “incomplete documentation,” the problem is almost never the number you offered. It is one of four specific gaps that stop the file from reaching anyone with the authority to negotiate on commercial terms.

What a bank actually checks before it looks at your number

Every public sector bank’s recovery department runs an OTS proposal through two distinct stages, and understanding the order matters.

The first stage is a completeness check. A designated officer confirms that every required annexure is present, correctly formatted, and signed by the correct parties. This is a procedural gate, not a judgment call. A proposal that fails here is returned to the borrower without ever being read for its commercial merits.

The second stage, reached only after the first is cleared, is the recovery committee’s substantive review. Here the committee weighs three things: whether the settlement amount is commercially reasonable relative to the realisable value of the security after recovery costs, whether the business’s financials and projections support an ability to actually pay the offered amount, and whether the account’s documentation history supports the borrower’s version of events.

Most MSME borrowers, and the generic advisors who assist them, prepare for the second stage and skip the first. That is the core reason first submissions fail.

This ordering is easy to miss because the rejection letter rarely states it plainly. A borrower who receives a one-line notice citing “incomplete documentation” has no way of knowing, from that letter alone, which of the required annexures triggered the return, or whether the underlying settlement offer was ever actually reviewed on its merits. The result is that many borrowers respond to a completeness rejection as though it were a commercial rejection, revising their offer amount when the offer amount was never the issue.

The four documentation errors that trigger automatic rejection

Error 1: Financial statements without a valid UDIN

Recovery departments at most public sector banks now require business financial statements attached to an one time settlement scheme proposal above roughly Rs 10 lakh to carry a valid Unique Document Identification Number, generated by a practising Chartered Accountant registered with the Institute of Chartered Accountants of India through the ICAI’s UDIN portal. A CA’s signature and seal alone, without a UDIN reference the bank can verify against the ICAI database, is treated by most recovery officers as unverifiable and the proposal is returned on that basis alone.

This is a recent tightening in practice rather than a statutory requirement written into any single Act, which is exactly why it catches borrowers off guard. Their CA prepared statements the same way they always have, and the bank rejects them anyway. Clients in this situation typically confirm with their CA in advance that a UDIN will be generated and quoted on the specific financials attached to the OTS file, not just the annual filing.

Error 2: No valuation of realisable security

A settlement proposal states an amount the borrower is offering to pay. The recovery officer’s job at the completeness stage is not to judge whether that amount is fair; it is to confirm there is a current, independent basis on which the committee later can judge that. Without a valuation report on the pledged or mortgaged security, dated close to the submission and prepared by an approved valuer, there is nothing for the committee to compare the offer against.

This connects directly to how the RBI frames compromise settlements. Under the Framework for Compromise Settlements and Technical Write-offs issued by the Reserve Bank of India (RBI/2023-24/40, DOR.STR.REC.20/21.04.048/2023-24, dated June 8, 2023), a compromise settlement is defined as a negotiated arrangement to fully settle the lender’s claim, generally involving some sacrifice on the lender’s part relative to the amount owed. 

A regulated entity’s board-approved policy is expected to set out how the sacrifice is assessed against realisable value. If the borrower has not supplied a current valuation, the bank has no documented basis to weigh that sacrifice, and the file does not move forward.

Error 3: Missing networth certificates for co-borrowers and guarantors

An OTS proposal built around the primary borrower’s financials alone is incomplete if the loan carries co-borrowers or guarantors, which most MSME credit facilities do. Guarantors are jointly and severally liable under the terms of most guarantee deeds, and a bank’s recovery committee evaluates each guarantor’s individual repayment capacity separately from the borrower’s. A missing networth certificate for even one guarantor is treated as an incomplete submission for the whole file, not a minor omission that can be supplied later without resubmission.

This error is common specifically because guarantors are often family members or business partners who are not directly managing the settlement process, and the primary borrower assembling the file overlooks that each guarantor needs to independently produce and sign their own certificate.

Error 4: OTS cover letter not co-signed by the guarantor

The formal cover letter proposing the settlement must be signed by every party to the original loan agreement, including guarantors, not by the borrower alone. Banks treat this as a substantive requirement rather than a formality: an OTS is a negotiated release of claims against everyone named on the original facility, and a settlement agreed to by the borrower but not acknowledged in writing by the guarantor leaves the bank’s legal position against that guarantor unresolved. A recovery officer who receives a cover letter signed only by the borrower will typically return the file rather than proceed on an incomplete acknowledgment.

What the RBI framework sets, and what each bank decides on its own

The RBI framework issued on June 8, 2023 is not a single national OTS scheme. It is an umbrella framework requiring every regulated entity, meaning every bank and most NBFCs, to have a board-approved policy governing how it conducts compromise settlements and technical write-offs. The framework also sets specific baseline conditions: regulated entities must observe a cooling period, subject to a floor of twelve months for non-farm exposures, before extending fresh credit to a borrower whose account was resolved through a compromise settlement.

What the RBI framework does not do is fix a single settlement percentage, a single documentation checklist, or a single timeline that applies across every bank. Each bank issues its own board-approved OTS policy inside that framework, and that policy sets bank-specific eligibility criteria, such as a minimum period the account must have been classified NPA, settlement floors tied to the account’s asset classification, and its own documentation requirements layered on top of what the RBI framework requires as a baseline.

This is the detail generic OTS guides consistently miss, because it is easier to write about “the RBI OTS scheme” as though one exists. It does not. An MSME borrower should be applying under their specific bank’s board-approved policy for the account’s current classification, sub-standard, doubtful, or loss asset, rather than quoting the RBI circular directly in a proposal as though it were the operative scheme.

Timeline from a complete submission to a sanction letter

Based on Hectogon’s review of concluded OTS matters, the typical sequence from a complete proposal to a final sanction letter runs as follows. Initial acknowledgment of receipt from the bank’s recovery department typically takes 15 to 30 days. Internal review and referral to the recovery committee typically takes a further 30 to 60 days. Sanction letter issuance, once the committee has approved the settlement, typically takes 15 to 30 days.

Taken together, that puts total time from a complete submission to sanction at roughly 60 to 120 days for accounts below Rs 2 crore, which usually fall within branch committee authority, and 120 to 180 days for accounts above Rs 2 crore, which typically require zonal or head office committee sign-off. These figures assume the proposal was complete on first submission. Every one of the four documentation errors above adds a full resubmission cycle, which in practice can double the total timeline for a borrower who has to correct and refile.

Why generic OTS assistance misses these four errors

Most of the OTS guidance available to MSME borrowers, whether from a generic debt-settlement advisor or a chartered accountant handling the settlement as a side engagement to a tax practice, is written around the commercial negotiation: what percentage of the outstanding to offer, how to frame the hardship case, how to present the business’s turnaround story. That guidance is not wrong, but it addresses the second stage of the bank’s review, the one the committee reaches after the file has already cleared completeness.

A CA preparing a client’s OTS proposal alongside their regular tax and audit work is usually applying the same certification practice they use for annual filings, because nothing in their engagement flags that ots proposal bank above a threshold now draw a stricter UDIN check at several banks. A generalist advisor assembling the file rarely asks every guarantor, individually, for a signed networth certificate, because the borrower’s own financials look sufficient on their face. Neither omission is negligence. Both simply reflect that the advisor’s attention was on the settlement case, not on the bank’s internal completeness checklist, which is rarely published and differs in its finer points from one bank to the next.

Hectogon’s OTS engagements begin with a documentation audit against the specific bank’s known completeness requirements before a proposal is drafted, precisely because the commercial case only gets evaluated once the file survives that first gate.

What this means before you resubmit

None of this changes the commercial negotiation itself, and nothing here guarantees a settlement will be accepted at any particular amount. What the completeness stage determines is whether your file reaches a committee empowered to negotiate on commercial terms at all, or gets returned before that conversation starts.

Clients who approach Hectogon after a first rejection typically find the same pattern: a settlement offer that was reasonable on its face, attached to a file that never reached the people who could evaluate it. Before resubmitting, it is worth confirming, specifically, that every financial statement carries a verifiable UDIN, that a current valuation of the security is attached, that every guarantor has supplied an individual networth certificate, and that the cover letter itself carries every required signature, not just the borrower’s.

A resubmission also restarts the clock. Most recovery departments do not treat a corrected file as a continuation of the earlier submission; it re-enters the queue as a fresh proposal, subject to the same 15 to 30 day acknowledgment window and the same committee referral timeline described above. Borrowers who have already had one proposal returned have the most to gain from a documentation audit before the second attempt, since a second rejection on the same procedural grounds materially weakens the borrower’s standing with the recovery department for any future negotiation on that account.

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