A business loan settlement calculator helps estimate what you may need to pay if your loan becomes non-performing and the bank offers a compromise. While RBI doesn’t provide an official formula, lenders typically calculate using outstanding principal + accrued interest – waiver (penal charges/interest). This blog explains the process, gives you a DIY calculation method, and highlights the impact on your CIBIL and future borrowing.
- What is a business loan settlement?
- Why there is no official RBI calculator
- How banks calculate settlement offers (formula)
- DIY business loan settlement calculator (step-by-step)
- Example calculation with table
- RBI’s compromise settlement rules (cooling period)
- Impact on CIBIL & future borrowing
- Alternatives before opting for settlement
- FAQs
What is a business loan settlement?
If your business loan turns NPA (non-performing asset)—usually after 90+ days overdue—the bank may allow you to pay a reduced lump sum as “full and final” under a One-Time Settlement (OTS). This helps banks recover something upfront while closing the account.
But remember: unlike “regular closure,” settlement means the account is reported to CIBIL as “Settled”, which is a negative mark for 7 years.
Why there is no official RBI calculator
RBI’s 2023 Compromise Settlement Framework allows banks/NBFCs to settle under board-approved policies. But it does not prescribe a fixed percentage or calculator because each case depends on:
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Principal outstanding
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Interest accrued
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Penal charges
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Borrower’s repayment capacity
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Estimated legal recovery under SARFAESI or other proceedings
So while you won’t find an RBI-issued calculator, you can still estimate ranges.
How banks calculate settlement offers (formula)
Banks typically use this logic:
Settlement Amount ≈ Principal Outstanding + Accrued Interest – Waiver (Penal Charges + Part of Interest/Principal)
Factors:
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Waiver % depends on your negotiation, collateral value, and bank’s recovery prospects.
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Lump sum vs. installments — Larger upfront payments often mean bigger waivers.
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NPA stage — Earlier-stage NPAs may have smaller waivers compared to loans already in legal recovery.
DIY Business Loan Settlement Calculator (Step-by-step)
Step 1: Collect details from bank
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Principal Outstanding (P)
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Accrued Interest (I)
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Penal/late fees (F)
Step 2: Negotiate waiver %
Banks may waive 50–100% of penal charges (F) and 10–40% of interest (I), sometimes even part of principal.
Step 3: Apply formula
👉 Settlement = P + (I × % payable) + (F × % payable)
Where % payable depends on negotiation.
Example calculation with table
Suppose your business loan dues are:
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Principal = ₹10,00,000
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Accrued Interest = ₹2,50,000
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Penal Charges = ₹50,000
| Component | Total Due | Bank May Waive | You Pay |
|---|---|---|---|
| Principal | ₹10,00,000 | 0% (usually not waived fully) | ₹10,00,000 |
| Interest | ₹2,50,000 | 40% waived | ₹1,50,000 |
| Penal Charges | ₹50,000 | 100% waived | ₹0 |
Settlement Amount = ₹11,50,000 (vs total ₹13,00,000 dues)
This is just an example. Real numbers depend on your bank’s policy and negotiation strength.
RBI’s compromise settlement rules (cooling period)
As per RBI June 2023 guidelines:
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Banks/NBFCs can approve settlements under their board policy.
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After a settlement, a minimum 12-month cooling period applies before fresh credit is given by the same lender (boards can extend it).
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This framework applies across personal, business, and MSME loans.
Impact on CIBIL & future borrowing
A “Settled” status on your CIBIL report signals risk. Impact:
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Score drop (~75–100 points or more).
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Difficulty raising new loans/credit lines.
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Higher interest rates if approved.
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MSMEs may struggle to get working capital in future.
Alternatives before opting for settlement
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Restructuring: Increase tenure, reduce EMI, moratorium on principal.
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Top-up/Balance transfer (if still eligible).
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Debt counselling: Work out staged repayment without a “settled” tag.
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Ombudsman escalation: Dispute unfair charges via RBI’s CMS portal.
FAQs
Q1: Can I calculate exact settlement online?
No. There’s no official RBI calculator. Use the formula above for a range estimate. Final approval depends on the bank’s committee.
Q2: Do all banks offer the same waiver %?
No. Each has its own board-approved OTS policy. Two banks may treat the same case differently.
Q3: Will settlement clear my business from SARFAESI proceedings?
Yes, but only after full payment of the agreed settlement and issuance of a closure letter. Until then, legal recovery can continue.
Q4: Will my CIBIL improve immediately after settlement?
No. It will show “Settled,” which is negative. Improvement requires years of clean repayment behavior after settlement.
