How to Settle Loans
Above 1 Crore in India

This process is not a right but a commercial decision made by the bank. When a loan account is classified as a Non Performing Asset (NPA) because of non payment for over 90 days, the bank must set aside funds as provisions. For loans above 1 crore, these provisions can be substantial, impacting the bank's profitability. Therefore, lenders are often willing to consider a settlement if they are convinced that the recovery through legal means would be time consuming, expensive, or uncertain.

A settlement at this scale often involves large haircuts, where 30% to 60% of the total dues might be waived. However, such decisions are never made lightly. Every proposal is subjected to a 'Pre Settlement Audit' and must pass through a 'Settlement Committee' or the bank's Board of Directors. The primary objective for the lender is to minimize losses while maximizing current cash flow.

The landscape of debt resolution in India underwent a significant transformation in June 2023. The Reserve Bank of India issued a circular titled 'Framework for Compromise Settlements and Technical Write-offs,' which streamlined the procedure for all regulated entities, including banks and NBFCs.

One of the most notable aspects of this new framework is the inclusion of wilful defaulters and fraud accounts in the eligibility for compromise settlements. Previously, such accounts were often excluded from any form of settlement negotiations. The RBI clarified that while criminal proceedings must continue, the financial recovery process through settlement is a valid mechanism for banks to clean up their balance sheets.

The One Time Settlement, or OTS, is the most common legal mechanism used to resolve high value debt in India. While there are standard OTS schemes launched periodically by public sector banks, custom OTS proposals can be submitted at any time. For a loan above 1 crore, a custom proposal is often more effective than waiting for a generic scheme.

An OTS involves paying a single lump sum amount, which is usually the 'Principal Outstanding' plus a small percentage of the interest, while the rest of the interest and all penalties are waived. In very distressed cases, even a portion of the principal can be written off. This is particularly possible if the property value has depreciated or if the bank believes that a forced auction will result in a lower recovery than the OTS offer.

Not every borrower with a 1 crore plus liability qualifies for a settlement. Lenders use a rigorous screening process to ensure that only 'genuine' cases are considered. The eligibility criteria usually focus on the following pillars:

If your loan above 1 crore has been sold to an ARC (like Phoenix, ARCIL, or JM Financial), your negotiation strategy must adapt. ARCs buy distressed loans from banks at a steep discount, often paying only 20% to 50% of the book value. This gives them a significant margin of maneuver during settlement negotiations.

However, ARCs are also highly focused on the 'Time Value of Money.' They would rather settle for a lower amount today than wait five years for an uncertain court result. For a 1 crore plus liability, the ARC will look closely at the 'Net Present Value' (NPV) of the recovery. If your settlement proposal offers a decent return on their purchase price, they are often more decisive than traditional banks.

Negotiating with an ARC requires a specialized 'Financial Feasibility Analysis' which we provide as part of our high value settlement services. We help you understand the price at which your loan was likely sold and structure an offer that is attractive to the ARC while saving you maximum capital.

Negotiating a settlement for 1 crore plus is as much an art as it is a science. At AMA Legal Solutions, we employ several advanced tactics to tilt the scales in your favor.

The SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) is the most powerful tool banks have for recovering loans above 1 crore. It allows them to take possession of your collateral without the intervention of a court.

However, the Act also provides several safeguards to the borrower. For instance, the bank must provide a 60 day notice under Section 13(2), and after taking symbolic possession, they must provide a 30 day sale notice under Section 13(4).

A settlement strategy is often built within these timeframes. By filing a Securitization Application (SA) in the Debt Recovery Tribunal, we can challenge the bank's actions, which often leads to a stay order. This litigation creates a 'legal hurdle' for the bank, making them much more willing to sit at the negotiation table and agree to an OTS. Our lawyers specialize in using SARFAESI litigation as a bridge to a successful settlement.

The Debt Recovery Tribunal (DRT) is the dedicated judicial forum for resolving high value loan disputes. Cases in the DRT can drag on for several years, causing stress and increasing the debt due to mounting interest.

While we represent clients in the DRT with full vigor, we always advise that the DRT should be used as a strategic tool to reach a settlement. A 'Consent Decree' in the DRT is often the safest way to finalize a 1 crore plus settlement, as it has the stamp of judicial approval. This prevents the bank from changing the terms later and provides a clear, court ordered path to debt freedom.

Being labeled a 'Wilful Defaulter' is a severe blow, effectively barring you from the formal banking system across India. However, the RBI's 2023 guidelines have opened a door for such borrowers to settle their dues.

If you have been classified as a wilful defaulter for a loan above 1 crore, settling the debt is the first step towards rehabilitation. While the 'Wilful Defaulter' tag remains on the records for some time, the closure of the debt through a compromise settlement significantly improves your legal and financial standing. It can also mitigate some of the severe consequences like the inability to start a new business or serve as a director in a company.

A 1 crore plus settlement has long term financial consequences that you must be prepared for. Beyond the credit score drop, there are tax implications. The amount waived is technically 'remission of debt,' which under Section 28 of the Income Tax Act, may be treated as business income if the loan was used for business purposes.

This can lead to a significant tax bill in the year of settlement. Part of our strategic advice involves coordinating with your tax consultants to ensure that the settlement is handled in a way that minimizes your tax burden. We also guide you on the 'repositioning' of your business credit after the settlement to ensure that you can eventually return to a healthy financial state.

At AMA Legal Solutions, we don't just 'process' applications. We provide an elite level of legal advisory and master level negotiation specifically for debts above 1 crore.