Two of these three paths are agreements between the borrower and the bank. A one time settlement closes the account for a negotiated amount. A loan restructuring keeps the debt alive on easier terms. A write-off is different: it is an entry in the bank’s books, and it does not cancel what the borrower owes. A borrower who is told that an account “has been written off” has not been released, and recovery through SARFAESI, the DRT or the IBC can continue.

This article compares the three on what they are, what each costs the borrower, and what happens to the NPA status afterwards. It covers commercial banks and the RBI rules that apply to them. If you are choosing between NPA resolution routes India 2026 offers, the costs below are the part that tends to be missed.

The rulebook: RBI’s 2025 Directions for commercial banks

On 28 November 2025 the RBI consolidated its instructions into a set of Master Directions. For commercial banks, the rules on compromise settlements, technical write-offs and restructuring now sit in the Reserve Bank of India (Commercial Banks) Resolution of Stressed Assets Directions, 2025 (RBI/DOR/2025-26/165). These Directions are the current text of what practitioners call RBI stressed asset resolution. Older explainers still cite the earlier circulars, including the June 2023 framework for compromise settlements and technical write-offs and the 2019 prudential framework. Each bank’s board-approved policy then sets the details within the Directions, so two banks can apply the same rules differently.

Path 1: Write-off, and why it is not relief

A technical write-off is described in the Directions as an accounting procedure a bank uses to clean up its balance sheet of bad debts. The same paragraph says such write-offs do not involve any waiver of claims against the borrower. The borrower is not a party to the entry and does not need to agree to it.

What this means for the borrower:

• The debt remains. The bank’s legal claim is unaffected, and its rights under the guarantee, the mortgage and the loan agreement stay in place.
• Recovery continues. A bank that has written off an account can still take SARFAESI action, file in the DRT or file under the IBC. For how those routes work, see Hectogon’s guide to debt recovery India and the side-by-side comparison of IBC, SARFAESI and DRT.
• There is no benefit to claim. A borrower cannot demand a write-off, and the entry does not reduce interest or the amount due.
• Records may follow. Written-off status is usually reported to credit information companies and can limit future borrowing. Confirm how your account is reported.
• Partial write-offs keep the rest in view. Where only part of an account is technically written off, the Directions treat the residual exposure on the basis of the original exposure for classification and provisioning.

If a bank tells you an account is written off, ask for a letter that says exactly what it means. Only a written settlement or release signed by the bank ends the liability.

Path 2: one time settlement (compromise settlement)

A compromise settlement, usually called a one time settlement or OTS, is a negotiated arrangement under which the borrower pays an agreed amount in cash to settle the bank’s claim in full, and the bank may waive part of the dues. This is the route behind most searches for an OTS bank loan deal, and the usual meaning of loan settlement India lenders offer to NPA borrowers. It is what most borrowers mean when they search for NPA one time settlement terms.

What the rules say that matters to a borrower:

• It is not a right. The Directions say compromise settlement is not available to borrowers as a matter of right. It is a commercial decision for the bank, made under its board-approved policy, which sets the process, the conditions before a settlement can be considered and how much of the dues the bank may sacrifice by category of exposure.
• Speed of payment matters. If the time to pay the agreed amount runs beyond three months, the arrangement is treated as a restructuring. A part settlement is also treated as a restructuring. A borrower who wants a clean settlement has to be able to pay in full and quickly.
• Approval sits above the sanctioning level. The decision must come from an authority at least one level above the one that sanctioned the loan, which affects how long a proposal takes.
• A court case needs a consent decree. Where judicial recovery proceedings are pending, a settlement needs a consent decree.
• Wilful defaulters and fraud accounts can be settled in principle. The board must approve it, and penal measures and criminal proceedings continue regardless.

The costs to the borrower:

1. The payment itself. A lump sum, usually well below the outstanding, but often above what borrowers first expect, because the bank compares your offer with what it thinks it can recover from the security.
2. A cooling period. The Directions require a cooling period before the bank gives the settled borrower fresh exposure, with a floor of 12 months for non-farm exposures. Boards can set a longer one.
3. A settled status in credit records. A settled account is usually reported as such to credit information companies, which can affect future credit from other lenders.
4. Possible tax consequences. The treatment of a waived amount depends on how it was dealt with in your accounts and returns. Take advice from a chartered accountant before agreeing.
5. Documentation cost. A proposal returned for defects restarts the clock. For the common errors, see Hectogon’s guide to why OTS proposals are returned at first review.

The details to secure in writing are a full and final settlement letter, release of all security and mortgage documents, release of guarantors, and a no-dues certificate. If you are an MSME borrower, check the Udyam registration point in Hectogon’s MSME guide.

Path 3: Loan restructuring

Restructuring is when a bank, because of the borrower’s financial difficulty, gives concessions: a longer repayment period, a changed instalment, a lower interest rate, a rollover, additional funds to clear a default, or a higher limit. A compromise settlement paid over more than three months also counts. For businesses, this is the route usually discussed as corporate debt restructuring India and it works only if the business can generate cash.

How the rules work in practice:

• Timelines. The framework runs on a 30-day review period after default, and a resolution plan is expected to be implemented within 180 days of the end of that period. If a viable plan is not implemented in time, the bank must make additional provisions, which gives it a reason to act early.
• Lender agreement. Where there are several lenders, a decision under an inter-creditor agreement binds all signatories if lenders holding 75 per cent by value and 60 per cent by number agree, and dissenting lenders must receive at least the liquidation value.
• Large accounts face more checks. For aggregate exposure of Rs 100 crore or more, the Directions call for an independent credit evaluation of the residual debt and an investment-grade rating (BBB- or better) before an upgrade, and two ratings at Rs 500 crore or more.

The costs to the borrower:

1. The debt stays. The borrower still owes the full amount, with the concessions replacing the old terms. Guarantees and security usually stay in place, and banks often ask for more.
2. Classification takes a hit or stays low. A standard account that is restructured is downgraded to sub-standard. An account that is already an NPA keeps its classification.
3. The upgrade is slow. An account can be upgraded to standard only after satisfactory performance during the monitoring period, and not before one year from the first payment of interest or principal on the facility with the longest moratorium. Satisfactory performance means no default with any lender in the period. Special rules apply to MSME accounts under Rs 25 crore.
4. A failed plan has consequences. For non-MSME accounts under Rs 25 crore that fail satisfactory performance, the Directions require a fresh restructuring or an insolvency process before any upgrade.
5. Price and conditions. Interest rates, fees, collateral top-ups, covenants and reporting requirements are all negotiable and all costs.

The three paths side by side

	Technical write-off	one time settlement	Loan restructuring
Who agrees	Bank alone	Bank and borrower	Bank (or lenders) and borrower
Borrower still owes the debt	Yes	No, once the settlement is paid and released	Yes, on new terms
Main cost to the borrower	None gained; recovery continues	Lump sum, cooling period, settled status	Interest, fees, collateral, long monitoring
Effect on NPA status	Account stays outstanding in the borrower’s name	Account closes	Upgrade possible only after a monitoring period
Main risk	Misreading it as relief	Delay, proposal defects, payment beyond three months	Plan failure and fresh enforcement

Choosing between settlement and restructuring

Write-off is a bank decision, so the real borrower choice is between a settlement and a restructuring. The usual dividing line is whether the business can pay its debts over time. A business with working cash flow and a plan that a bank accepts may prefer restructuring because it keeps the business running. A business whose cash flows cannot carry the debt, or whose security is losing value, is often better placed to explore a settlement while a bank still has something to gain from agreeing.

Enforcement does not wait for these discussions. A SARFAESI notice carries a 60-day clock, a possession step starts a 45-day window to challenge it under Section 17, and an IBC application can follow a default of Rs 1 crore or more. Talks with the bank do not pause any of those periods unless the bank agrees in writing. A borrower should run the legal timeline and the negotiation together.

Questions to put to the bank in writing

Before choosing a path, a borrower is better placed with written answers to a short list of questions:

1. What is the account’s NPA classification and the date it was classified?
2. Has any part of the account been technically written off, and what does the bank say that means for the borrower’s liability?
3. Which board-approved policy would apply to a settlement or restructuring, and what are its eligibility conditions?
4. For a settlement, what is the minimum amount the policy allows, how is the realisable value of the security worked out, and who has to approve it?
5. For a restructuring, what concessions are on offer, what security or guarantees will be required, and what monitoring period applies?
6. Will the bank agree to hold enforcement steps while the proposal is considered, and will it say so in writing?

The answers do not guarantee any outcome. They show whether the bank is treating the proposal seriously, and they give the borrower a record to rely on if a dispute follows.

When professional review matters

The right path depends on the account, the security, the lender and the business. A review of the bank’s policy, the NPA date, the value of the security and the borrower’s cash flows, before a proposal is made, is usually more useful than one after a proposal has been returned. Clients in this situation typically consider having the options compared in writing, and the enforcement dates mapped, before approaching the bank. No advisor can lawfully promise that a bank will agree to a settlement or a restructuring.

Frequently asked questions

Does a bank write-off cancel the borrower’s loan?

No. A technical write-off is an accounting step by the bank. The RBI’s rules say it does not waive any claim against the borrower, so the debt remains and the bank can continue recovery through SARFAESI, the DRT or the IBC. Only a written settlement or release from the bank ends the liability.

What is the difference between OTS and loan restructuring?

An OTS settles the bank’s claim in full for an agreed payment, usually less than the amount due, and closes the account. A loan restructuring keeps the debt and changes its terms, such as the repayment period or interest rate. A settlement paid over more than three months is treated as a restructuring.

Is a bank bound to accept a one time settlement?

No. The RBI’s rules say compromise settlement is not available as a matter of right. It is a commercial decision for the bank under its board-approved policy. A borrower can make a proposal, but the bank decides whether to accept it and on what terms.

Can a borrower get fresh credit after an OTS?

Not from the same bank for a period. The RBI’s rules require a cooling period before fresh exposure to a settled borrower, with a minimum of 12 months for non-farm exposures, and a bank’s board can set a longer one. Other lenders make their own decisions, and a settled status in credit records may affect them.

Can a restructured NPA account be upgraded to standard?

Yes, but only after satisfactory performance during the monitoring period, and not before one year from the first payment of interest or principal on the facility with the longest moratorium. A default with any lender during that period counts against the account. Larger accounts face rating requirements.