We can still clearly recall our initial conversation with an Itanagar manufacturing entrepreneur whose company had been suffocating under an NPA classification for more than two years. He'd built something real, a textile unit with twenty employees, steady orders, solid relationships with clients. But one bad monsoon season, a delayed shipment payment, and suddenly his Rs 2 crore loan became a non-performing asset. The bank’s legal department was relentless. SARFAESI notices arrived monthly. His property - the collateral he’d mortgaged, was marked for auction.

What struck us most wasn’t his panic. It was his resignation. He genuinely believed this was the end.

That conversation changed how we think about financial distress in places like Arunachal Pradesh. Because the reality is this: an NPA classification isn’t a death sentence. It’s a fork in the road.

The Actual Problem Most Businesses Face
Look, when you’re classified as a Non-Performing Asset - meaning your account has been dormant for 90 consecutive days without any payment, traditional banking channels shut down completely. No working capital. No overdraft facility. No hope of getting fresh credit. Banks enter recovery mode. They deploy SARFAESI notices, drag you through legal proceedings, and start the process of auctioning your secured assets.

For businesses in Arunachal Pradesh specifically, this hits differently. Over 74,000 MSMEs across the Northeast are already struggling to survive due to geography, limited banking infrastructure, and market access challenges. Add an NPA classification on top of that, and you’re essentially cut off from the financial system entirely.

The system was designed this way to protect banks, not to help businesses recover. And that’s exactly why OTS funding and NPA financing exist.

What Actually Happens When You Pursue One-Time Settlement
One-Time Settlement isn’t some magical wand. It’s actually quite straightforward, but nobody explains it properly.

Here’s the real mechanism: once your account turns NPA, your bank begins calculating what they can recover. They know SARFAESI proceedings will take time, cost money, and might not recover the full amount if asset values have depreciated. So they look at your case and think: what if we just accept a reduced payment now, close this account, and move on?

That’s OTS.

Your bank might say: “You owe us Rs 3.5 crore total, but we’ll accept Rs 2 crore cash right now and close the entire account.” You pay that amount, get a No Dues Certificate, and the NPA tag disappears from your credit profile instantly. That’s the entire mechanism.

But here’s the catch: most borrowers don’t have Rs 2 crore sitting in their current account to pay immediately. So specialized financiers step in and say: “We’ll pay your bank that Rs 2 crore directly. You pay us back over five years with reasonable EMIs.” That’s OTS funding.

Why NPA Funding Versus OTS Funding Matters for Your Situation
This distinction is crucial because most people confuse these two completely different products.

OTS funding is narrowly focused: it finances whatever settlement amount you negotiate with your current bank. You settle the account, close the relationship, and move forward with a new lender.

NPA funding or what people call NPA takeover, goes broader. Here, an alternative lender doesn’t just fund your settlement. They actually purchase your entire distressed account from your current bank. Your loan obligation transfers completely to this new lender, who then restructures everything. Better repayment terms. Possible working capital infusion. Sometimes even a moratorium period where you pay minimal amounts for six months while stabilizing your operations.

We’ve seen businesses choose NPA takeover specifically because they needed more than just settlement - they needed capital injection and breathing room to restart operations. Others chose OTS funding because they wanted a cleaner break from their previous banker.

Neither is objectively better. It depends on what your business actually needs.

The Legal Reality You Must Understand
When your account is classified as NPA, three different legal frameworks can come into play depending on loan size and account nature. Understanding which one applies to you changes everything.

Secured loans exceeding Rs 1 lakh are typically covered by the SARFAESI Act. Without a judge's approval, banks can seize your mortgaged assets after giving you a 60-day notice. I've seen business owners freak out when they receive SARFAESI notices, not understanding that they still have 60 days to look into settlements or OTS.

NCLT and IBC come into picture if your entity is registered as a company. The insolvency process is actually quite structured—creditors initiate proceedings, you get 330 days to resolve, and either restructure or get liquidated. It sounds brutal, but it’s actually designed to give everyone a fair shot at resolution.

Lok Adalat, though, is the unsung hero. These are literally “people’s courts” where judges facilitate settlements between banks and borrowers, and the decisions are final and binding. In Arunachal Pradesh, Lok Adalat has settled over 1,000 cases, recovering Rs 2.64 crore in bank funds while also giving borrowers relief. These proceedings are intentionally designed to be less hostile than formal litigation.

What Actually Changed for That Entrepreneur from Itanagar
The manufacturing unit we mentioned earlier? He eventually accessed NPA funding through a specialist lender. That lender paid his bank Rs 1.8 crore - which was less than his full liability but acceptable to the bank because they wanted the account closed. His new repayment structure was Rs 42 lakh annually over five years. More importantly, he got Rs 50 lakh additional working capital injection to purchase raw materials and fulfill pending orders.

Within eighteen months, his business was profitable again. His employees still had jobs. His property remained secured in his name with the new lender (rather than being auctioned by the bank). His credit score began recovering.

Was the outcome perfect? No. He paid less principal but over a longer period. He paid interest to the new lender. He lost access to some government schemes temporarily. But he preserved his business, his assets, and his future.

The Path Forward Is Real
Arunachal Pradesh’s economy is growing. The state budget has expanded significantly, and new manufacturing incentives are attracting investment. This isn’t the time to surrender to an NPA classification.

Whether you’re exploring SARFAESI defense mechanisms, negotiating with Lok Adalat, or seriously considering OTS funding or NPA takeover, the first step is understanding that specialized solutions exist specifically for your situation.

It's not necessary for your company to end up with an NPA. It's merely a financial setback that can be strategically handled with the correct funding partner and guidance.

It is not a question of whether recovery is feasible. It has to do with your willingness to act before it's too late.