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No.IBA/POL/2004-05/ 142

July 23, 2004.

Chief Executives of all Member Banks

Dear Sirs,

Educational Loan Scheme -
Modification in the Security Norms

The Educational Loan Scheme advised by the Reserve Bank of India for implementation by banks vide their circular RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated 28 th April 2001 is based on a model scheme prepared by Indian Banks' Association.. Under the existing scheme, loans up to Rs.7.5 lakhs are considered for studies in India and Rs.15 lakhs for studies abroad. With a view to ensuring that no deserving / meritorious student is denied opportunity to pursue higher education for want of financial support, the scheme had provided for waiver of collateral for loans up to Rs.4 lakhs.

On a review, it is found that a loan limit of Rs.4 lakhs is considered sufficient for pursuing most of the professional courses including courses in IITs, IIMs and Government Medical Colleges . However, cost of education in certain courses like the five and half year M.B.B.S Course in Private Medical Colleges exceed Rs.4 lakhs, thereby making it difficult for a meritorious student to pursue such courses unless he / she is in a position to provide collateral security sought by banks for sanction of educational loan. With a view to enable meritorious students to pursue higher education / professional courses based on his aptitude and interest, it is proposed to relax security norm for loans up to Rs.7.5 lakhs. Under the revised norm for loans above Rs.4 lakhs but not exceeding Rs.7.5 lakhs, no tangible collateral security will be insisted upon. For such loans, banks would take only a satisfactory guarantee provided on behalf of the student. The above modification is also in line with the announcement made by the Hon'ble Finance Minister in his Budget Speech on 8 th July, 2004. The modification in the security norm also has the approval of the Reserve Bank of India .

Revised security norm for educational loans, which may be incorporated in the existing scheme is annexed . This is for your kind information and necessary action.

 

Yours faithfully,

H N Sinor

Encl : as above.

 
 
Annexure to Circular No.IBA/POLICY/2004-05/ dated 23 rd July 2004.
Modification to Paragraph 7
of Model Educational Loan Scheme
 

SECURITY

i)
 Up to Rs.4 lakhs :

No security

ii)
 Above Rs.4 lakhs and
upto Rs.7.5 lakhs		 :

Collateral in the form of a satisfactory third party guarantee.

iii)
 Above Rs.7.5 lakhs :
Collateral security of suitable value or co-obligation of parents / guardians / third party along with the assignment of future income of the student for payment of installments.
 

Note:-

The document should be executed by both the student and the parent/ guardian.

The security can be in the form of land/ building/ Govt. securities/ Public Sector Bonds/ Units of UTI, NSC, KVP, LIC policy, gold, shares/ debentures, bank deposit in the name of student/ parent/ guardian or any other third party with suitable margin.

Wherever the land/ building is already mortgaged, the unencumbered portion can be taken as security on II charge basis provided it covers the required loan amount.

In case the loan is given for purchase of computer the same to be hypothecated to the Bank.

Banks who wish to support highly meritorious/ deserving students without security may delegate such powers to a fairly higher level authority.