Collateral free study loans up to 7.5 lakhs

Banks in India are most likely to raise the limit for collateral free education loans to Rs 7.5 lakh with the aim to make it easier for students to finance their studies.

The decision was taken in a meeting of finance minister P Chidambaram with chiefs of public sector banks on August 18, where Chidambaram asked the Indian Banks’ Association (IBA) to ensure easier access to such funds, reported The Indian Express.

Currently, education loan from banks up to Rs 4 lakh does not require any security, whereas, a third party collateral is needed for loans in the range of Rs 4 lakh and Rs 7.5 lakh. For loans above Rs 7.5 lakh, the bank requires co-application of the parent/guardian, assignment of future income of the student, and a substantial liquidable asset in form of collateral. (Read more)

Chidambaram said that only officials ranked higher than receiving officers can reject an application and that bank officials will be penalized for wrongful rejection of an eligible loan application. 

The IBA had revised the model educational loan scheme in May 2012. According to MD Mallya, chairman and managing director, Bank of Baroda, IBA will review various issues and come out with a new circular. Issues include current deficiencies such as pro-activeness in providing appropriate credit, perhaps without insisting on collateral on loans up to Rs 7.5 lakh.

Now banks may not be required to consider the service area for giving such loans. Current guidelines require students to submit their loan applications only at bank branches near their parent’s residence or the educational institution.

The new norms are also expected to cut down loan processing duration from the current 15-day period. (Read more)

 

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