Banking News

What is right of set off?


The contract between the banker and borrower is a contract between debtor and creditor. The contract implies that the borrower promised to repay the money borrowed by him. Right of set off is the right of the bank to combine the two accounts of the same person where one account which is in credit balance and the other account is in debit balance in order to cover a loan default. The banker can exercise the right of set-off only when the money owed to him is a sum certain, which is due and where there is no agreement, express or implied to the contrary.

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(2) Comments

  1. D Jyoti

    can a Bank exercise right to set-off in the following way. a) debit unutilised limit of an OD account which is already in debit to set-off a debt. b) The amount has been debited without raising a demand and without intimating about the intention. c) The loan turned NPA because of incorrect opening of the account in the system by the bank and giving a wrong end of term. d) Because of system issue the housing loan arrear was not detected and the account was stamped as NPA without any intimation. e) The EMI was not revised by the Bank nor intimated. The term which was almost reduced by three years and the Bank says the system does not allow to amend now. This is the case of a reputed Bank. Kindly comment

    1. Surendra NaikSurendra Naik - Post author

      By allowing debit in OD account (unutilized limit) the total liability of the borrower does not change. However, if the earlier outstanding is getting time-barred, the bank may ask the borrower to withdraw money from OD account and adjust the amount to liquidate earlier outstanding of another account. The borrower cannot be punished for bank's own (system) problems. In case the amount is really overdue as per sanction terms, the borrower cannot claim that he has not received demand notice from the bank, and therefore not repaid the installments according to the sanction.

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