Getting an educational loan from a bank to pursue higher education would have been a dream come true two decades ago. Today, things have changed vastly in the banking scene and there are many more players in the fray. But it still feels like a miracle to get the loan.
Let me illustrate with a recent real-life example..
R Vijayapriya of Bodinayakanur in Theni district had enrolled in a college in Erode to pursue a three year PG-course. The fee (including hostel accommodation and other expenses) as determined by the institution was ₹4.45 lakh. She sought an education loan from a nationalised bank and was sanctioned just ₹1.20 lakh.
Vijayapriya sought legal intervention and the bank was ordered by the Court to pay the remaining sum.
In yet another instance, an employee of a nationalised bank sought a loan to educate his daughter. The candidate was sanctioned ₹2.50 lakh against the course fee of ₹3.25 lakh.
So, you see, things really haven’t changed all that much for the loan seeker. For one, banks often make tall claims about the number of loans disbursed in a year without disclosing the loan amount sought by the applicants and the amount actually sanctioned.
Capitation Fee
Are banks justified in deciding on the quantum of the loan? Do they reason out with the applicants the portions disallowed or at least inform them that the loan is being sanctioned only partly?
A cross section of bankers that we spoke to maintained that they were at times compelled to disallow certain sums, but preferred not to list the details of disallowance. So what do they disallow? Capitation fee, said one banker. Well, just think about it. If the borrower can afford a capitation fee, he/she must have the wherewithal to pay the fee which, compared to the capitation fee, could be nothing. So why would one need a loan in the first place? But even if one were to give this theory credence, which institution issues a receipt for collection of capitation fee?
Why do banks sanction partial amounts? They claim to go by the reputation of the educational institute cited by the loan applicant. This completely ignores the needs of the loan seeker – after all, if one wants to do a particular course, and it is offered by a certain college for a certain fee, what choice does the loan applicant have? When banks decide to sanction the loan only partially, how will loan seekers remit the full fee and complete the course?
It would seem banks unwittingly create a situation whereby these loans turn into non-performing assets (NPAs). Adding to all this confusion is the fact that different banks have their own yardstick to allow or disallow expenses.
Collateral
Applicants frequently complain that banks demand collateral even when the sum sought is below ₹4.5 lakh. According to government norms, banks have no right to reject such applications citing lack of collateral. There are also delays in sanctions and the applicant is in the dark about the fate of his or her application. Perhaps the Finance Ministry or RBI can make surprise checks on this issue and find out the truth.
There are other kinds of malpractices too. Banks have, in recent years, started to include the parent also as a co-borrower, and there have been instances of branch heads demanding sums towards servicing the interest component, from the sanctioning date. There have been cases where they have compelled the applicant to take insurance. Some do it without the consent of the borrower.
Despite all these problems, those seeking education loans are not likely to take on the banks and run the risk of having their application rejected. Only the Government can take action here, and the sooner, the better.