Compromise Settlement of NPAs: Fairness & Compliance Mandated
Current · Source: Reserve Bank of India · RBI/2009-10/500 · issued 21 Jun 2010 · ~2 min read
Quick answerRBI mandates that all compromise/one-time settlements of NPAs must be fair, transparent, and fully compliant with its guidelines. Sanctioning officers must now certify compliance. This follows concerns over inconsistent treatment of borrowers and ignoring available securities.
The rule, in the simplest words
Banks must ensure their compromise settlement processes are uniform and transparent, with full adherence to RBI guidelines.
Sanctioning officers must certify that each settlement complies with RBI norms.
Banks must review and audit their current compromise/one-time settlement policies and practices to ensure they align with RBI guidelines.
How it plays out — a real example
Rahul, a credit & lending officer in Indore, ensures that every compromise settlement he sanctions is fair and transparent. He reviews the borrower's financial situation, checks for available securities, and verifies that the settlement amount is in line with RBI guidelines. Before finalizing the settlement, Rahul appends a certificate stating that the compromise settlement conforms to RBI norms, ensuring that the bank's processes are uniform and compliant.
What changed
RBI observed that banks were applying different parameters to different borrowers during compromise settlements, sometimes agreeing to lesser amounts despite ample securities and ignoring RBI guidelines. To address this, RBI now requires the officer sanctioning a compromise/one-time settlement to append a certificate stating the settlement conforms to RBI guidelines.
What it means for you
Banks must ensure their compromise settlement processes are uniform and transparent, with full adherence to existing RBI circulars. The new certification requirement adds a layer of accountability, making sanctioning officers personally responsible for compliance. This could slow down settlement approvals but aims to prevent regulatory and legal challenges.
What you must do
Review your bank's current compromise/one-time settlement policies and practices to ensure they align with RBI guidelines.
Implement a mandatory certification process where the sanctioning officer certifies that each settlement complies with RBI norms.
Train sanctioning authorities on the new certification requirement and the importance of fair, transparent treatment of all borrowers.
Audit recent settlements to identify any deviations from RBI guidelines and take corrective action.
Who it affects
All Scheduled Commercial Banks (excluding RRBs & LABs), Sanctioning officers/authorities handling compromise/one-time settlements, Borrowers with NPAs seeking compromise settlements
❓ Common questions
What triggered this RBI directive?
Concerns were raised by Debt Recovery Tribunals and other quarters about banks using different parameters for different borrowers during compromise settlements, sometimes ignoring available securities and RBI guidelines.
What is the new certification requirement?
The officer or authority sanctioning a compromise or one-time settlement must now append a certificate stating that the settlement is in full conformity with RBI guidelines.
Does this apply to all banks?
Yes, it applies to all Scheduled Commercial Banks, but Regional Rural Banks (RRBs) and Local Area Banks (LABs) are excluded from this circular.
📜 Read the original circular — full text as issued by RBI
RBI/2009-10/500
DBOD.BP.BC.No.112/ 21.04.048/2009-10
June 21, 2010
The Chairmen/Chief Executives of
All Scheduled Commercial Banks
(excluding RRBs & LABs)
Dear Sir
Compromise/Negotiated/One Time settlement of Non Performing Assets
Of late, certain serious concerns have been expressed in different quarters and by the Debt Recovery Tribunals over the manner compromise settlements have been effected by banks. One of the DRTs had also observed that banks adopted different parameters to different borrowers, and agreed for a lesser amount as against claimed amount, despite availability of ample securities and by ignoring RBI guidelines.
2. In this connection, we draw your attention to our circular DBOD.No.BP. BC.81/21.01.040/95 dated July 28, 1995, read with circulars DBOD.BP.BC. No.50/21.04.018/2006-07 dated January 4, 2007 , DBOD.BP.BC.34/21.04.048 /2007-08 dated October 4, 2007 , and other related circulars issued from time to time and advise that adequate care should be taken to ensure that the compromise settlements are done in a fair and transparent manner and in full compliance with RBI guidelines on the matter.
3. It has also been decided that henceforth, the officer/authority sanctioning a compromise/one time settlement should append a certificate stating that the compromise settlements are in conformity with the RBI guidelines.
Yours faithfully,
(B. Mahapatra)
Chief General Manager-In-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2009-10/500 · issued 21 Jun 2010. The plain-English explanation above is BankPulse’s own independent summary.
Review your bank's current compromise/one-time settlement policies and practices to ensure they align with RBI guidelines.
Implement a mandatory certification process where the sanctioning officer certifies that each settlement complies with RBI norms.
Audit recent settlements to identify any deviations from RBI guidelines and take corrective action.
📜 Compliance
Train sanctioning authorities on the new certification requirement and the importance of fair, transparent treatment of all borrowers.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are an Operations officer at a bank this circular applies to (All Scheduled Commercial Banks (excluding RRBs & LABs), Sanctioning officers/authorities handling compromise/one-time settlements, Borrowers with NPAs seeking compromise settlements), your first concrete step on “Compromise Settlement of NPAs: Fairness & Compliance Mandated” is: “Review your bank's current compromise/one-time settlement policies and practices to ensure they align with RBI guidelines.” (RBI issued this 21 Jun 2010).
Action required: Review your bank's current compromise/one-time settlement policies and practices to ensure they align with RBI guidelines.
Action required: Implement a mandatory certification process where the sanctioning officer certifies that each settlement complies with RBI norms.
Action required: Train sanctioning authorities on the new certification requirement and the importance of fair, transparent treatment of all borrowers.
Action required: Audit recent settlements to identify any deviations from RBI guidelines and take corrective action.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=5733&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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