The policy,
introduced by the CBN by virtue of Section 2 (d) of the CBN Act, 2007, is to
promote a sound financial system and enhance loan recovery across the Nigerian
banking sector. It was approved by the Bankers’ Committee on February 18, 2020.
On July 13, 2020,
the Financial Policy and Regulation Department of the Central Bank of Nigeria
(CBN) in circular No. FPRD/DIR/GEN/CIR/07/056 to all banks and other financial
institutions announced the operational guidelines for the new policy for
individual bank customers in the country.
To regulate
effective implementation of the GSI process, including eligible loans granted
by banks from August 28, 2019, the CBN issued the guidelines for all banks and
other financial institutions.
The following
explainer is to highlight not only the importance and significance of the GSI
to the country’s banking and financial system, it will also show how the policy
will work and the role of the different parties involved.
Under the GSI, it
will no more be possible for a bank customer to take a loan or credit from one
bank and refuse to pay back, while continuing to maintain several other
accounts in other banks with enough credit balance that could have paid back
the debt of the first bank.
For instance, with
the new policy, if a bank customer or account holder is granted a loan or
credit by a bank (say GTB), and defaults in paying back when the facility
becomes due in line with the agreed GSI repayment mandate, GTB can contact any
other bank(s) in the country where the defaulting customer holds an account(s)
with credit balance that is enough to offset the full value of the loan or
credit and recover the loan or credit from there.
For instance, if a
customer takes a loan or credit from GTB and defaults in repaying according to
agreed repayment schedule, GTB can contact Zenith Bank, Access Bank and First
Bank, if the customer has accounts with sufficient credit balances in those
banks, and the accounts are linked by his or her bank verification number
(BVN), to recover the full value of the loan or credit without any further
recourse to the defaulting customer.
Under the GSI, the
creditor is the person responsible for setting-up, updating, triggering and
deleting GSI mandates. The execution of GSI mandates to recover past due loan
or credit obligations (principal and accrued interest only) from a defaulting
borrower through a direct off-set or deduction from deposits/investments held
in the borrower’s qualifying bank accounts with any PFI in Nigeria, is without
further recourse to the borrower.
The banks are not
allowed to deploy GSI as a tool to recover any penal charges that may have
accrued or accumulated on a credit/loan by a customer included as part of
outstanding balances or obligations he or she is owing. The GSI is a last
resort by a creditor bank to recover its loan or credits.
The types of
accounts that would be affected by the GSI policy include individual customer’s
savings and current accounts; individual domiciliary account; investment or
deposit accounts (Naira & foreign currency-denominated), and electronic
wallets held by the customers.
Even if these
accounts are held jointly, any money found in them as credit balances would
still be recovered, as long as they are linked to the affected customer’s BVN.
Under the GSI, apart
from the CBN, which is responsible for ensuring uninterrupted availability of
the Credit Risk Management System (CRMS) platform and connectivity to NIBSS
platform, various parties involved in the process have different roles to play.
The parties include the borrower, creditor bank, PFIs, and the Nigeria Inter-Bank
Settlement System (NIBSS).
Apart from the
responsibility of executing the GSI mandate in hard copy or digital form, the
CBN said the borrower is also responsible for ensuring that the terms and
conditions of the mandate are clearly understood before execution.
GSI mandate is an
instruction (written or digital) executed by a customer or Account Holder in a
PFI who has borrowed money or taken a loan or credit from a bank authorizing
the creditor bank to recover an amount specified by the creditor from any or
all accounts maintained by the Account Holder across all PFIs in the country.
Also, the borrower
is responsible for ensuring that all qualifying accounts are linked to his/her
name bank verification number (BVN). Where any of the borrower’s accounts is
found not linked to his/her BVN, such BVN would be placed on watch-list by the relevant
anti-graft agencies, including the Economic and Financial Crimes Commission
(EFCC).
On its part, the
creditor bank, which is a participating financial institution (PFI) that
granted a loan/credit to a borrower for which a GSI mandate was executed, is
responsible for ensuring that detailed information the GSI policy and the
mandate are included in their loan application process and borrowers properly
educated about them and their implications before granting the loan or credit.
Each of the PFIs in
the scheme shall conform to the minimum requirements, including being a
financial institution duly licensed by the CBN; have adequate IT infrastructure
to meet all the connectivity and protocol requirements at NIBSS and CBN;
provide access to customers’ Nigeria Uniform Bank Account Number (NUBAN)
accounts.
The bank will also
review and validate the GSI mandate instrument prior to loan disbursement;
indemnify the Nigeria Inter-Bank Settlement System (NIBSS) and other PFIs from
all liabilities that may arise from inappropriate use of the GSI
infrastructure.
Copies of the
physical or digital versions of the executed GSI mandate are to be retained by
the bank to be produced on demand; ensure the GSI trigger amount is only for
outstanding principal amount and accrued interest, excluding any penal charges.
In addition, the
bank has the responsibility to ensure compliance with CBN’s prudential
guidelines applicable to all classification of loans, while the Managing
Director/CEO of each PFI would routinely update the Board of Directors on the
GSI process as it relates to frequency of use and amounts recovered or released
as part of its risk management responsibilities.
For the PFIs, the
CBN said they have the responsibility of executing the GSI mandate agreement
with NIBSS; ensure all qualifying accounts are properly maintained and visible
to NIBSS on the Banking Industry Customer Accounts Database (ICAD), or by any
other service created or provisioned for this purpose.
The PFIs would also
ensure that customer’s accounts in NIBSS’ ICAD are correctly tagged with the
correct BVN linking the person; ensure and maintain connectivity to the Nigeria
Central Switch, while ensuring all balance enquiries and debit advice received
from NIBSS for GSI trigger is accepted and honoured in accordance with the
master agreement, including GSI recall instructions.
The GSI Trigger is
an electronic instruction from a creditor bank to NIBSS and all PFIs connected
to NIBSS Instant Payment (NIP) platform to initiate a GSI transaction against a
defaulting borrower subject to the provisions of the CBN Prudential Guidelines
to deduct the outstanding principal amount and accrued interest on a loan or
credit in Line with the terms stated in an executed offer letter.
The MD/CEO of each
PFI shall routinely provide update to the Board of Directors on the GSI process
as it relates to the frequency of use and amounts recovered or released.
The role of the
NIBSS in the process is to execute the Master GSI agreement between PFIs;
administer the back-end of the GSI services by utilizing NIP protocols where
the creditor bank has initiated a balance enquiry, debit instructions on
identified accounts and completes the GSI operations by instantly transferring
the collated funds to the borrowers pre-designated repayment account in the
creditor bank.
The NIBSS will also
provide back-end related status report(s) to the CBN in a format and frequency,
as may be required.
The agency is also
to ensure that the availability of the ICAD database is uninterrupted for PFIs
to update, while also rendering periodic reports as may be prescribed by the
CBN, which is the regulatory agency responsible for uninterrupted availability
of the Credit Risk Management System (CRMS) and connectivity to NIBSS platform
Any creditor bank
that activates a GSI mandate in error against any customer, apart from
violating the CBN Prudential Guidelines shall be liable to a fine of N500,000
per incident, in addition to not getting the refund of all associated charges
borne over the error.
Any PFI that wrongly
places a CBN approved restriction on an eligible account to shield it from the
GSI Trigger, resulting in the GSI being unable to either perform an account
status check enquiry or debit the account shall be liable to a fine equivalent
to the amount in the ‘restricted/shielded’ eligible account, an amount that
would not be considered as part of any subsequent GSI Trigger amount, whether
successful or not.
A PFI that fails to
grant the GSI permission to perform an Account Status Enquiry Check/Request
shall be liable to a fine of N100,000 per initial incident and each subsequent
repeat request/instruction, regardless of the GSI Trigger amount.
A PFI that fails to
grant the GSI permission to debit an eligible account shall be liable to pay a
fine of N100,000 per initial incident and each subsequent repeat
request/instruction, regardless of the GSI Trigger amount.
Besides, the erring
PFI shall pay a fine equivalent to the balance in the account shielded from the
GSI’s Debit Request, regardless of the GSI Trigger amount.
Where debits to a
defaulter’s loan or credit accounts are unsuccessful due to a reduction in an
amount previously blocked by the GSI, the PFI shall pay the equivalent of the
blocked amount to the creditor bank, in addition to a fine of N100,000 per
incident, regardless of the GSI Trigger Amount.
Where a customer’s
account is debited in error due to a PFI wrongly tagging an account in NIBSS’
ICAD with the wrong unique identifier, the PFI primary responsibility shall be
to immediately notify the creditor bank of the error, quoting relevant customer
and GSI details, before promptly refunding the wrongly debited amount with the
same amount of the GSI Debit.
There will be no
additional charges accruing in same account, although the PFI will bear any
other liabilities that may follow thereon, in addition to a fine equivalent to
the amount erroneously debited to the wrong account.
Where the arbitrator
rules against the creditor bank for a disputed GSI Transaction, the creditor
bank shall pay an additional fine of N10 million or 10 per cent of the disputed
sum, whichever is greater, in addition to the fines for any erroneous or
otherwise disputed transaction.
Where a creditor
bank includes penal charges in the GSI Trigger amount, in the event of a
successful GSI Trigger, regardless of the amount recovered, the erring creditor
bank shall refund the full penal charge amount to the borrower along with
interest calculated using the penal rate from date of GSI trigger to refund
date.
In event of both a
successful and unsuccessful GSI trigger, the erring creditor bank shall pay a
fine of N100,000 or equivalent of the penal charge amount, whichever is
greater.
0 Comments