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N10m fine against erring banks, other implications of CBN’s new GSI policy

THE Central Bank of Nigeria (CBN) on Monday released new operational guidelines on Global Standing Instruction (GSI), a new policy aimed at enhancing a loan repayment culture, which applies to all financial institutions in the country.

The new policy which will in effect reduce non-performing loans in the Nigerian banking system is to be implemented by banks across the country from August 1.

As its main objective, the GSI policy guarantees creditor banks recovery of past due obligations (loans) from a defaulting borrower through a direct set-off from deposits/investments held in the borrower’s qualifying bank accounts with participating financial institutions.

For loan defaulting customers, this means that a creditor bank can now access their other bank accounts connected through Bank Verification Number (BVN) and claim payment.

However, the policy permits creditor banks to recover only principal and accrued interest of the loans, excluding any penal charges.

In executing the GSI policy, every borrower must effect the GSI mandate and ensure that terms are understood.

It also requires borrowers to link qualifying accounts to their BVN and in a case where a borrower defaults on this requirement, their BVN is to be placed on a watchlist.

For creditor banks, they have a duty to educate borrowers on the GSI policy as well as enshrine it in loan applications.

Implications/penalties of the GSI policy

The CBN in its guidelines also drew out a number of violations and applicable sanctions for creditor banks and Participating Financial Institutions (PFI).

According to the new policy, where a creditor bank activates a GSI mandate in error, it is liable to pay a fine of N500,000.00 per incident.

It also states that if a creditor bank includes penal charge in the GSI Trigger Amount, if successful, the erring bank shall refund the full penal charge amount to the borrower with interest.

The bank shall also pay a fine of N100,000 or equivalent of the penal charge amount.

Where a PFI fails to grant the GSI permission to debit an eligible account, the policy demands that the erring PFI pays a flat fine of N100,000 regardless of the GSI Trigger Amount.

Additionally, the erring PFI shall pay a fine equivalent of the balance in the account shielded from the GSI’s Debit Request.

The policy also empowers a customer to seek the service of an arbitrator should in case there’s a wrongful activation of GSI on their accounts.

If the arbitrator rules against the bank in favour of the customer, the bank is to pay a fine of N10 million or 10 per cent of the disputed sum, whichever is greater.

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