Legality and practicability of the guidelines on GSI: the Central Bank Of Nigeria got it right
The Central Bank of Nigeria (CBN) approved the implementation of the guidelines on Global Standing Instruction (GSI) to ensure practical debt recovery machinery through the use of which outstanding loans can be legally recovered from defaulters who have refused to offset the debt advanced to them by the crediting banks, long after they have become overdue.
It has its objectives as the facilitation of an improved credit repayment culture, the reduction of Non-performing Loans (NPLS) in the banking industry and watchlisting consistent loan defaulters. The guidelines make clear provisions requiring the borrower to execute a GSI mandate at the point of obtaining the loan authorizing the bank to recover the sum advanced, by deducting from all the accounts (including Joint Accounts) standing to the credit of the borrower to which the latter’s Bank Verification Number (BVN) is linked, to the satisfaction of the debt owed.
On its part, the creditor bank is not to deduct from any of the borrower’s accounts, penal charges accruing from non-repayment of the loan as and when due, only the exact principal loan sum and accrued interest are to be recovered as contained in the guidelines. Also, the Participating Financial Institution ( PFI) is proscribed from shielding the accounts of the defaulter.
This arrangement creates a strong systematic synergy between CBN as the regulatory agency for all banking transactions in Nigeria, the Creditor Bank which financial interest is at stake, the PFI and Nigerian Inter-bank Settlement System (NIBSS) the windows via which the monetary status of the borrower (mostly private sector entities) can be traced for the smooth reclamation of the loan.
The GSI has been commended, in many quarters, as innovative and essential at this point.
THE POWERS OF CBN TO ISSUE GUIDELINES
The dual laws establishing and conferring unfettered regulatory powers on the CBN are the Central Bank of Nigeria Act (CBN Act) and the Banks and Other Financial Institutions Act (BOFIA), the combined provisions of which allows CBN as the banker’s bank to make regulations (including releasing of guidelines) and do such other things ancillary and necessary to the promotion of good banking services and policies and the constant galvanization of the nation’s economy.
Also, CBN has the power to issue guidelines to regulate the activities of Banks in Nigeria. The powers conferred on the CBN by its enabling statutes give it the powers to issue guidelines such as the guidelines on GSI. It is pursuant to and in a concerted exercise of this statutory assignment that the regulator bank deemed it timely and expedient to wheel out the guidelines on GSI. It cannot even be remotely averred that the CBN acted outside the scope of its powers and functions, as this has not been restricted by the enabling Act, when it made allowance for the carrying out of incidental functions by the Bank to augment the discharge of its duties. The relevant provisions of enabling statutes are:
To be continued next week