The need for OTS arises due to the fact that whenever the recovery proceedings are initiated and legal notices are issued to recover dues from the defaulting borrowers, the defaulters in most of the cases obtain different kinds of stay orders from different Courts and the matter remains pending for a long time. During this period the lenders are not able to recover their interest/principal dues from such borrowers as the matter remains subjudice. In order to improve the recovery from all such cases and also from the chronic defaulters and in order to reduce the Non Performing assets (NPAs), the mechanism of OTS of dues was evolved.

There is an increase in tendency from banks to prefer one time settlement (OTS) as against enforcement of security interest or recovery through legal route. The trend is gaining momentum because of the tardy legal process involved.