No.IBA/POL/2004-05/

August 12, 2004.                                                                                      Confidential

Chief Executives of all Member Banks

Dear Sirs,

Educational Loan Scheme -
Clarification regarding revised security norms

Please refer to our circular No.IBA/POL/2004-05/142 dated 23 rd July 2004 communicating certain modifications in the security norms specified in the model educational loan scheme. The modifications were carried out in line with the announcement made by the Finance Minister on the subject scheme in his Budget Speech.

We have been informed by some of the member banks that in most cases the student would still be a minor while applying for educational loan and, as such, it is the normal practice to consider parent/s as the co-obligant/s. Clarifications have been sought from us regarding applicability of security norms in such cases. In this connection, we advise as under :-

1) For loans above Rs.4 lakhs and up to Rs.7.5 lakhs, banks are required to obtain a satisfactory guarantee provided on behalf of the student as security. It is clarified that where the parent/s is/are the party to the loan as the co-obligant/s and the bank is satisfied about the net-worth of the parent/s, the bank may waive the condition regarding third party guarantee.

2) We have not proposed any modification in the security norm for loans above Rs.7.5 lakhs. Banks may obtain appropriate collateral security as hitherto.

Yours faithfully,

H N Sinor