Banks denying education loans to students citing parents’ low credit ratings defeats the very purpose of such facilities observed the Kerala High Court. Further, nationalised and scheduled banks would not be justified in framing conditions such as the CIBIL score of co-borrowers or parents when it comes to the sanction of priority sector loans, the court stated.
Kiran David and Gayathry V S, two students, had approached the court against the rejection of the education loan application by the State Bank of India (SBI) on the grounds that their parents did not have the CIBIL score that is required.
Opposing the plea, it was the submission of SBI that the education loan policy was that the loan would be sanctioned in the name of both students and parents, the latter being a co-borrower. Hence, the banks need to ensure that the co-borrower too have the necessary credit discipline.
Justice N Nagaresh, citing a Supreme Court verdict, said “The repayment possibilities are to be decided not on the financial position of the parents but solely on the projected future earnings of the students on employment after education.”
The bank has been directed by the court to reconsider the loan applications and while doing so, disregard the low credit score of the co-borrowers and sanction and disburse eligible loan amount, if the petitioners are otherwise eligible, within a month.
When the bank disburses loans as priority sector loans, the court said, the eligibility criteria fixed for sanction of such loans should necessarily have a nexus with the object sought to be achieved. With a view to enabling poor and middle-class students to pursue higher education of their choice without any constraint of funds, a scheme was provided by the Union government to ensure that no student misses out on higher education for lack of funds.