RESERVE BANK OF INDIA
Rural Planning & Credit Department
CENTRAL OFFICE
Central Office Building ,
13 th Floor, Mumbai - 400 001

RPCD.PLNFS.BC.NO.83/06.12.05/2000-01

April 28, 2001

To
The Chairman/Managing Director
All Scheduled Commercial Banks

Dear Sir,

The Finance Minister in a meeting with the Chief Executives of the public sector banks on 13 June, 2000 had highlighted the role of commercial banks in facilitating pursuit of higher education by poor, but meritorious students. In pursuance thereof the Indian Banks' Association constituted a Study Group under the chairmanship of Shri R.J.Kamath, Chairman and Managing Director of Central Bank to examine the issue in detail. Based on the recommendations of the Study Group, a comprehensive model educational loan scheme was prepared by the Indian Banks' Association for adoption by all banks. The Scheme aims at providing financial support from the banking system to deserving/meritorious students for pursuing higher education in India and abroad. The scheme was announced in the Union Budget for 2001-2002 and discussed in the meeting the Finance Minister had with the Chief Executives of banks on 7 April 2001.

2. Government of India , Ministry of Finance, Department of Economic Affairs (Banking Division) has considered and decided to accept the Model Scheme prepared by IBA for implementation, subject to the following modifications: 

       I.  The condition of minimum qualifying marks in the last examination may be dropped.

       II. No margin may be insisted upon for loans up to Rs.4 lakhs. However, for loans of             higher amounts, the margin requirement may be 5% for inland studies and 15% for             studies abroad.

      III. No security may be insisted upon for loans up to Rs.4 lakh. However, for loans above             this amount, 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 may be obtained.

      IV. Loans up to Rs.4 lakh may be advanced at interest rate not exceeding PLR of the             bank. Above Rs.4 lakh, the interest rate may be PLR+1%.

3. We accordingly, forward herewith a copy of the model scheme prepared by IBA for implementation by banks after effecting the modifications indicated at (i) to (iv) of para 2 above, at the earliest so that its benefits are available to students from this academic session itself. 

4.  It is clarified that this Scheme is separate and in addition to and not in supersession of the scheme earlier circulated by RBI under Supreme Court orders vide our circular RPCD.bc.10/09.07.01/99-2000 dated 31 st July 1999 issued to public sector banks. 

5. Please acknowledge receipt. 

Yours faithfully

Sd/-

(Varughese John)
General Manager

Encl: As above

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

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.