One-time settlement can be the best way to close one’s NPA account liability at a reduced value of the original outstanding amount by taking a waiver on interest & penalty levied by the bank. An OTS also helps banks to clean their balance sheet by reducing their NPA accounts, so it is largely supported by banks as well as other financial institutions.
A borrower can approach their bank to apply for OTS and similarly, banks also offer time-to-time OTS schemes to their NPA accounts borrowers and an OTS is approved by the bank to the borrower at a mutually favorable value. When an OTS is approved it’s the borrower’s responsibility to service the OTS within the timeline. There are various ways to fund the OTS like raise.
OTS Funding
OTS can be funded in many ways through debt finance, sale of collateral, and Private borrowing depending upon the current income or business, collaterals & most of the availability of such resources.
1. Debt Finance:
OTS can be funded through a debt loan from a financial institution that understands NPA and OTS transactions and has such financial products to deliver OTS. They are able to cater to OTS transactions and have a deep understanding of the borrower’s legal & financial situations. These financial institutions provide funding for OTS from partial to full amounts of OTS as per the financial profile of the borrower and the valuation of underlying securities. This finance facility is available in all parts of India & a moratorium period can be given as a requirement and availability of funds.
2. Private Funding:
An NPA borrower can take the help of a private funder/lender to fund his OTS. These private lenders are available on a local basis & can be accessed through local real estate agents who are in contact with private lenders. The best part of private funding is that it does not require any ratings and financial profile, they just need a collateral property which must be located in their area of operations. Repayment can be done through monthly interest.
3. Sale of Collateral Property:
The sale of collateral properties is also considered the best way to fund the OTS and there is the majority of borrowers who sell their collaterals & complete their OTS Transactions. This can be done by obtaining permission from the existing OTS bank & whatever the amount comes from this will be directly deposited to the bank to reduce the liability.
A tripartite agreement is made between the Buyer, the Borrower, and the bank for the proper execution of the sale transaction. All the important terms & conditions are mentioned in this agreement which safeguards the rights of every member and also gives confidence to the buyer toward a transparent transaction.
