Picture: Reuters.

London - British bank Barclays has stockpiled more cash to cover a growing compensation bill for mis-selling interest rate hedging products (IRHP) and payment protection insurance (PPI), it said on Tuesday.

Following a review, Barclays said it would include a provision of 850 million pounds ($1.3 billion) for IRHP, an increase of 400 million pounds, in full-year results on February 12.

The provision for PPI will now reach 2.6 billion pounds, an increase of 600 million pounds.

Several British lenders face a collective bill of around 12 billion pounds for mis-selling loan insurance designed to protect borrowers who missed repayments due to illness or redundancy.

Consumer groups that challenged banks over the way the policies were marketed and sold won a landmark court case in 2011, opening the floodgates to thousands of compensation claims over one of Britain's biggest ever consumer scandals.

Industry sources have told Reuters they expect the final bill for banks to top 24 billion pounds.

Barclays' announcement came hours before new Chief Executive Antony Jenkins and Chairman David Walker appear before UK lawmakers to testify to a banking inquiry into industry standards, which was launched after Barclays was fined $450 million last June for rigging Libor interest rates.

Jenkins, who used to run retail banking, is likely to be grilled on why the bank - and the industry - has consistently underestimated the scale of redress for PPI claims.

Last month, the head of Britain's Financial Ombudsman Service, Natalie Ceeney, said banks only had themselves to blame for the spiralling costs of the scandal, which she said could have been contained if they had addressed the issue earlier.

The ombudsman service, which steps in when banks and their customers cannot reach an agreement on compensation, said it was receiving up to 10,000 complaints each week about PPI and has hired 1,000 new staff to cope with the caseload. - Reuters