: The Union Ministry of Finance has finalised a
scheme to create a Rs 2,500 crore credit guarantee fund to offset
the risk of banks which are otherwise hesitant to grant education
loans to students fearing non-recovery of the loan amount.
The corpus, to be called Credit Guarantee Fund Trust (CGFT)
for Higher and Vocational Education, would encourage
banks to release education loans to students with ease,
a Finance Ministry official said on January 28. The
Union cabinet will soon clear the scheme, he added.
The CGFT will ensure better flow of credit to deserving
students and will guarantee education loans sanctioned
under the Model Educational Loan Scheme developed by the
Indian Banks Association. The scheme has been in
operation since 2001, but has not picked up due to
banks’ reluctance to lend.
The percentage of non-performing assets of banks is the
highest in the education sector, a fact that is
discouraging banks from lending to students. That
explains why barely 7 per cent of the nearly 1.5 crore
students enrolled in higher education courses currently
avail educational loans from banks.
But soon this cause of reluctance will stand addressed.
The high point of the CGFT initiative is that students
(with annual family income below Rs 4.5 lakh) will be
able to avail education loans up to Rs 7.5 lakh without
giving any collateral security or third party guarantee.
The CGFT will cover the said loan extended by the bank
to the extent of 75 per cent of the amount defaulted by
the student. Banks can also approach the CGFT to cover
education loans above Rs 7.5 lakh without taking any
collateral security or third party guarantee in special
cases involving deserving students. All the bank needs
to do to avail of the credit guarantee is pay a nominal
guarantee fee of 1 per cent per annum of the loan amount
sanctioned by it.
“The trust will act as the risk pooling and risk
minimizing body for banks so that they don’t have to
worry about generating NPAs through loan non-recovery.
By paying a nominal annual fee, banks can become
eligible for credit guarantee. As much as 75 per cent of
the defaulted loan amount will be returned as per the
plan,” top HRD Ministry sources said.
In case of default, the CGFT will pay 75 per cent of
the guaranteed amount as the first installment to the
bank concerned and the balance will be paid after the
conclusion of loan recovery proceedings by the lending
banking institution. Currently, under the Model Loan
Scheme, loans up to Rs 4 lakh are disbursed by banks
without taking collateral security (residential property
etc) and third party guarantee, though the parent must
sign up as a co-borrower.
However, loans above Rs 4 lakh and up to Rs 7.50 lakh
are currently secured by way of third party guarantee,
which is very difficult for most students to give. That
discourages students from seeking loans.
The broad parameters of the Scheme are:
(i) The scheme would be applicable for studies in
technical and professional courses in India. The
interest subsidy shall be linked with the existing
Educational Loan Scheme of IBA and restricted to
students enrolled in recognized professional courses
(after Class XII) in India in Educational Institutions
established by Acts of Parliament, other Institutions
recognized by the concerned Statutory Bodies, Indian
Institutes of Management (IIMs) and other institutions
set up by the Central Government.
(ii) Under the Scheme, interest payable by the student
availing of the Educational Loan Scheme of the Indian
Banks’ Association for the period of moratorium (i.e.
course period, plus one year or six months after getting
job, whichever is earlier) as prescribed under the
Educational Loan Scheme of the Indian Banks’
Association, shall be borne by the Government. After the
period of moratorium is over, the interest on the
outstanding loan amount shall be paid by the student, in
accordance with the provisions of the existing
Educational Loan Scheme and as may be amended from time
(iii) The benefits under the Scheme would be applicable
to those students belonging to economically weaker
sections, with an annual income upper limit of Rs 4.5
lakh per annum.
(iv) The interest subsidy under the Scheme shall be
available to the eligible students only once, either for
the first undergraduate degree course or the post
graduate degrees/diplomas. Interest subsidy shall,
however, be admissible for combined undergraduate and
(v) Interest subsidy under this scheme shall not be
available to students who either discontinue the course
midstream, due to any reason except medical
grounds, or to those expelled on disciplinary or
(vi) The National Minorities Development & Finance
Corporation (NMDFC) has an Educational Loan Scheme for
individual beneficiaries, which is implemented through
State Channelizing Agencies (SCAs). The national Safai
Karamcharis Finance and Development Corporation under
the Ministry of Social Justice and Empowerment also
provides educational loan to the students of the target
group for higher education. Interest on Educational Loan
provided under these two schemes shall also be
subsidized for the period of moratorium.
(vii) Modalities for implementation and monitoring
mechanism shall be finalized in consultation with the
Canara Bank. There would be a tag/marker on the degree
of the student indicating his repayment liabilities.
(viii) The scheme shall be applicable from the academic
The Scheme is expected to ease the financial burden on
the target group of students to pursue technical and
professional studies (after Class XII) in recognized
institutions in India and thereby increase their access
in these streams of education. This Scheme will benefit
about 5 lakh students in getting technical and
can't impose new terms to deny edu loan
CHENNAI : Madras High Court has ruled that Educational loan is a
state welfare measure streamlined by the Reserve Bank of India and
that the other banks can’t introduce new conditions to deny the
facility to eligible students.
Justice K Suguna, directed the Tiruchi branch of the
ICICI Bank Limited to give educational loan to petioner
S Yoganathan, a Scheduled Caste student who had obtained
admission in an MBA course in a private college.
The single judge bench ruled : “Educational loans are
welfare measures to enable poor students to pursue
higher education with the assistance of loan facilities
provided by banks."
Amazed, the court said "here is a case where the loan
sought by Yoganathan is rejected on wrong assumption and
presumption. This cannot be accepted... The circular
issued by the Reserve Bank of India is binding on ICICI
Bank. Overlooking the guidelines, the bank cannot follow
its own norms in the matter of sanction of educational
Yoganathan, who completed his BBA course with 56 per
cent marks, got admission in MBA in Kavery Engineering
College, Salem, under the government quota. As the
tuition and boarding fees worked out to Rs 1.45 lakh, he
sought an educational loan from ICICI Bank.
On June 16, the bank rejected the application, saying
that Yoganathan wasn’t a meritorious candidate.
Questioning the rejection, he filed the writ petition,
stating that the April 28, 2001, circular of RBI didn’t
talk about merit. It just required SC students to score
at least 50 per cent marks to be eligible for the loan.
Justice Suguna pointed out that private banks were also
bound by RBI guidelines. Since Yoganathan satisfied the
eligibility norms prescribed by RBI, it wasn’t for the
bank to deny him a loan. She then directed ICICI Bank to
sanction the loan within 30 days.
students get 6% subsidy on loans
: The government of Karnataka has decided to subsidize
study loans for the students in the state, according to the state's
Higher Education Minister, Mr
students seeking admissions to courses in Engineering, Architecture,
Medical, Dental or Indian System of Medicine and Homeopathy (ISM&H)
can avail loans up to Rs 5 lakh from any nationalised banks in the State with the
government offering six per cent subsidy on the interest rates.
The scheme is to be executed by the Karnataka Examination Authority
(KEA) which has been made the nodal agency to implement this scheme.
The subsidy on the interest for the first year will be remitted by KEA
to the bank directly, based on the certificate furnished by the KEA.
From the second year onwards, based on the certificate furnished by
the head of the college, the subsidy will be remitted to concerned
banks subject to certain terms and conditions.
affordable education to all students, the government has decided to
deduct Rs 10,000 of the engineering fee.
engineering fee for the entire course costs around Rs 25,000 of the
which the government had announced a deduction of Rs 10,000 for the
poor and meritorious students seeking admissions in government
colleges with effect from the 2009-10 academic year.
About 20,000 students would be benefited from the fee subsidy measure,
Limbavali, said that the recruitment of the lecturers will be
conducted at the earliest.