The Central Bank of Nigeria (CBN) has released guidelines on Global Standing Instruction (GSI) that would enable banks to debit account of loan defaulters without recourse to the account holders.
The CBN released the guidelines in Abuja on Monday.
According to the guidelines, the GSI will “serve as a last resort by a Creditor bank, without recourse to the Borrower, to recover past due obligations.
The GSI will specifically target Principal and Accrued Interest only while “excluding any Penal Charges from a defaulting Borrower through a direct set-off from deposits/investments held in the Borrower’s qualifying bank accounts with participating financial institutions.”
The objectives of GSI, the CBN said, include facilitating an improved credit repayment culture; reducing Non-Performing Loans (NPLs) in the banking industry; and watch-listing consistent loan defaulters.
The types of accounts that qualify for GSI are Individual Savings Accounts; Individual Current Accounts; Individual Domiciliary Accounts; Investment/Deposit Accounts (Naira and Foreign Currency); and Electronic Wallets.
Henceforth, bank debtors are expected to execute a GSI mandate in hard copy or digital form; ensure that the terms and conditions of the mandate are clearly understood before execution; and ensure that all qualifying accounts are linked to his/her BVN.
According to the CBN: “In the event that a borrower’s qualifying account is not linked to his/her BVN, such BVN shall be Watch-Listed.”
The Creditor Bank, on its part, will ensure that borrowers are properly educated about the GSI mandate and its implications; and enshrine same in their loan application process.
Also, the banks are expected to “review and validate the GSI mandate instrument prior to loan disbursement.”
The banks are to indemnify Nigeria Inter-Bank Settlement System Plc (NIBSS) and other Participating Financial Institutions (PFI) from all liabilities that may arise from inappropriate use of the GSI infrastructure.
They are to also “retain copies of physical or digital version of the executed GSI mandate and to provide same when required. The banks are to ensure that the GSI Trigger Amount is only for outstanding Principal Amount and Accrued Interest (excluding ANY Penal Charges).”
The banks were ordered to comply with CBN’s Prudential Guidelines as it applies to classification of loans; and as a risk management tool, the MD/CEO of each PFI “shall routinely update the Board of Directors on the GSI process as it relates to frequency of use and amounts recovered or released.”
The guidelines note that PFI’s MD/CEO are not absolved of the overall responsibility over activities of the bank.
“Any loan for forbearance review must show evidence of GSI trigger otherwise full provisioning would be required (except where there are CBN permitted waivers),” the guidelines stated.