LAHORE: Some borrowers are found denying cost of funds by entering into settlements with banks during the pendency of recovery proceedings, said sources.

According to sources, the borrowers take the plea that any cost of funds can only be payable if the date of default is determined by the court.

Once a settlement is arrived between the parties, it eclipses the financing agreement and normally the suit is decreed in terms of the settlement. Therefore, they are no more bound to bear the cost of funds, they added.

Banking laws practitioners have further pointed out that the banking tribunals agree with the borrowers on the ground that since the decree is not passed by them, therefore, banks are not entitled to their claim for the cost of funds.

Especially, when the principal amount and mark up has already been paid by a borrower the banks are entitled to claim mark up unto the date of default/ expiry whereas the cost of funds will only follow after the date of default.

They said the tribunals further hold that the period of default can only occur when a judgement is rendered against a borrower, followed by a decree while determining the cost of funds.

However, the banks prefer to contest their recovery proceedings on the ground that their borrowers are bound to pay mark up till the date of maturity of the financing agreement instead of the date of settlement irrespective of not mentioning about it in the settlement agreement. According to sources, banks take it as an outstanding amount as per the settlement.

Banking experts said the highest appellate forums have agreed with the stance of banks by considering the amount under the head of the cost of funds as payable mark up the date of maturity of the financing agreement.

They said the cost of funds cannot lightly be ignored by the tribunals, as mere writing of the cost of funds might be a mistake if this amount is not recovered as mark up, the sources concluded.

Copyright Business Recorder, 2023