Latest RBI Guidelines

Settlement is not something a borrower chooses out of preference. Banks and financial companies only consider it when you are in genuine financial difficulty and are truly unable to repay the full amount.

The latest RBI guidelines for one time settlement (OTS, meaning you pay once and the matter ends) now sit in new Directions. Here is what changed:

• 28 November 2025: RBI consolidated its stressed-asset instructions into entity-wise Directions. These include one for commercial banks and one for NBFCs (non-bank finance companies).

• The 2023 settlement rules carried over. They now sit inside the new Directions. [LEGAL FLAG: confirm the repeal of RBI/2023-24/40 against RBI's repeal circular DOR.RRC.REC.302/33-01-010/2025-26 before stating it as fact]

• 1 October 2026: The commercial banks version was updated as on this date. The 2026 amendments mostly concern calamity relief and property held by banks.

RBI does not fix a settlement percentage. Each bank decides under its own board-approved policy. So no one can tell you in advance what your bank will accept, and anyone who quotes a single number is guessing.

What the Directions do is set the frame. They say who must approve, how long payment can take, and how long the bank must wait before lending to you again. The sections below put each rule in plain words.

First, why borrowers reach this point.

Your EMIs have already started to slip. One or two went unpaid in the last few months. Then the calls started, and the weight grew.

How does it get here? A job loss. A medical emergency. A business slowdown. Income that stopped while the EMIs did not. These things rarely come with a warning.

The difficulty is real, and most of it sits outside your control. You did not choose it. Nobody reading this page chose to be unable to pay.

Here is a fair way to see it. One missed EMI does not lead straight to a settlement. Many banks first discuss softer steps, such as a new schedule or a short break. Settlement comes up only when repaying in full has become genuinely impossible.

It also helps to know that this is a process with rules. RBI's instructions bind the bank. They explain what a settlement can and cannot look like. Knowing them keeps you steady when the conversation starts.

If calls or visits turn abusive, that is a separate matter. RBI rules cover how recovery must be done, and a later section covers what you can do.

So the useful question is not "how fast can I settle?" It is "what do the rules say, and what does my bank decide?" The next sections answer both.

Banks look at settlement in a narrow set of cases. Here is how to tell if yours fits.

Banks tend to consider settlement when:

• Repayment has become genuinely impossible. This is the starting point. A bank will not look at settlement for someone who can still pay.

• The account is already overdue or marked as a bad loan. A bad loan is called an NPA (marked as bad by the bank, usually after 90 days of missed EMI).

• You can show your difficulty with papers. Income records, expense records and proof of the event help the bank understand your case.

• You can pay the agreed amount in one go. The Directions treat long payment plans differently, as the table below shows.

It is not meant for you if:

• You are still managing your EMIs, even with effort. An EMI change or consolidation fits you better, and keeps your record cleaner.

• You want settlement because it looks cheaper. Settlement is not a shortcut, and it carries real effects on your record.

• You are hoping to wait for a better deal. Banks do not reward delay, and the effects on your record grow with it.

Here is how RBI tags overdue accounts. SMA means special mention account. SMA-0 is up to 30 days overdue, SMA-1 is 31 to 60 days, and SMA-2 is 61 to 90 days. These stages describe when banks start paying attention. They are not a tip, and they are not a plan.

Also check how heavy your load already is with EMI Score. If a large share of your monthly income is already committed to EMIs, review whether restructuring, consolidation or another repayment option is sustainable before considering settlement.

Settlement is generally considered in the context of financial stress, but the lender decides whether it is appropriate under its board-approved policy and individual assessment. It is never a choice made out of preference, and the steps below are the general method.

1. Write Down What You Owe
   List principal, interest and charges for each loan separately. Settlement talks start from the real numbers.

2. Check Your Account Status
   Find out whether the account is overdue or marked as a bad loan. Banks look at settlement only for genuine inability to pay.

3. Ask in Writing for a Hearing
   Write to the recovery team and explain your difficulty. A written request creates a record.

4. Share Proof of Your Situation
   Give income, expense and difficulty papers. The bank decides on these.

5. Hold the Offer Before You Pay
   The offer must state the amount, deadline and "full and final". Never pay before you hold it in writing.

6. Pay by the Deadline
   Pay through the bank's official channel and keep every receipt. A late payment can cancel the offer.

7. Collect the Settlement Letter
   Ask for the settlement letter and check that your credit report shows "Settled". It is your proof that the matter ended.

This takes time. A bank may take weeks to respond at each stage, and nothing here is quick. Be wary of anyone who says otherwise.

Each step above follows a rule in the Directions. The next section sets them out one by one.

These rules bind the bank. They are not a checklist the borrower can enforce, but they explain what to expect.

The table below reflects the commercial banks Directions. Read the last column first, since it shows what each rule means for you.

What the Directions Say, in Plain Words

In practice, the Directions shape the conversation, but they do not decide it. The bank still decides whether to settle, and on what terms. These provisions mainly establish how lenders must structure, approve and report compromise settlements. For borrowers, the practical takeaway is to understand the lender's policy and obtain the settlement terms in writing. 

The Directions are also "without prejudice to any other statute in force" (para 100). Other laws still apply alongside them. The Lok Adalat route is one place where these rules meet a court-linked process.

NBFCs and other lenders have their own matching Directions. Ask which set applies to your loan.

The order matters. Softer options come first, and settlement comes last. They are never equal choices for the same person.

The table puts 4 routes side by side. Read the "Effect on your credit record" column first, since that is where the real difference shows.

Four Routes, From Softer to Last

Rates and ranges shown are indicative. Final terms decided by the bank. FREED is not a Loan Provider. No outcome is guaranteed. Please verify directly with your bank.

Up to 50% is a ceiling, not a promise.

In practice, each row suits a different person. If you can still pay, the first 3 rows come first. The 4th is for people who cannot repay in full, and it comes last.

Start by asking for an EMI change, such as a new schedule or a short break. A balance transfer credit card suits 1 expensive balance. Debt consolidation suits people who can still repay but are stretched thin across several dues.

Settlement is for people who genuinely cannot repay in full. The credit score does not drop with consolidation. A “Settled” status can affect how future lenders assess your credit history. The reporting period and impact should not be presented as a fixed universal seven-year rule without a specific bureau or regulatory source.

Helps borrowers move from financial distress to a structured path toward resolving their debt and rebuilding their financial future.

First, the framing. This is for people who cannot repay in full. It is not a smart move or a shortcut, and banks only consider it when repayment has become genuinely impossible.

Here is the process, in order:

• FREED assesses your full picture: loans, income, expenses and repayment capacity.

• A personalised plan is built around it.

• You save a fixed amount each month into a Special Purpose Account (SPA) in your own name. An independent trustee holds it, not FREED.

• Once the savings are enough, FREED negotiates with the bank on your behalf.

• The bank decides the terms. You accept or decline each offer, and no money is released without your authorisation.

• After payment, you receive a settlement letter from the bank.

This takes time. Savings build first, and negotiation follows. Nothing here is quick.

FREED charges only on a completed settlement. If a bank refuses to settle, FREED does not charge the service fee and refunds the initial evaluation fee.

FREED covers unsecured debt only: credit cards, personal loans, BNPL (buy now pay later) and loan apps. It does not handle home, car or gold loans.

The waiver is up to 50%*. The bank decides the final figure, and no outcome is guaranteed. More than 20,000 accounts have been settled, and 20,00,000+ customers have been counselled. You can read how FREED's Debt Resolution Program works in full.

Rates and ranges shown are indicative. Final terms decided by the bank. FREED is not a Loan Provider. No outcome is guaranteed. Please verify directly with your bank.

A few habits protect you through the process. These 6 tips take little time.

• Get the offer in writing before you pay. A verbal figure can change, and a written one is your proof.

• Pay only through the bank's official channel and into the bank's account. This protects you from anyone posing as the bank.

• Keep every receipt and the settlement letter. They prove what was paid and that the matter ended.

• Never sign blank papers or hand over blank cheques. A blank page can be filled in later with terms you never agreed to.

• Be careful with anyone who promises approval or asks for a fee before any work is done. A promise of approval is empty, since only the bank decides.

• Check your credit report after the update. For credit card dues, RBI's card rules require the bank to update the credit bureau within 30 days of the settlement of dues.

The credit card 30-day update (tip 6) is not in this table until the para number is re-checked against the 2025 card Directions. The writer should re-read each paragraph on RBI's own PDF.