The settlement involves a payment of $85 million plus an allowance in respect of interest and costs in full and final settlement of the class action.
As $50 million of the settlement comprises available insurance proceeds with the remainder covered by existing provisions, there will be no action on 2013 financial year earnings, NAB said.
In a statement to the Australian Securities Exchange (ASX), NAB said the settlement does not reflect an admission of liability by the bank.
"We have always said we would vigorously defend the class action and we remain confident about our legal position in the proceedings," NAB company secretary Michaela Healey said in the statement.
"The settlement of the class action is a purely commercial decision made in the interests of our shareholders," she said.
Ms Healey said that following the agreement, NAB is now able to continue its focus on improving company returns of shareholders.
The settlement is subject to approval from the Supreme Court of Victoria. If approved, it will be administered by Murice Blackburn in accordance with a settlement scheme.
NAB said that if the settlement is approved by the Court, the proceedings will be dismissed without admission of liability.
