Wednesday, March 4, 2009

Banks cannot deny education loan on the bases of parents repay capacity

The Madras high court in its judgment said in case banks persist on the repayment capacity of parents and refuse educational loans to students, it will beat the very purpose of the government’s welfare scheme.

The court instructed the Tirupattur branch of the State Bank of India to give an educational loan to M Rajeswari, who had scored 1,075 marks in the Plus Two examination and got admission in an engineering college in Chennai, Justice K Suguna told that the government had taken a policy decision to extend loans up to Rs 4 lakh without any security. "This is the policy of the government...it will mean that the government is willing to advance loans to poor students with an intention that they should not be denied their higher education on the ground of lack of finance..."

On the denial of the educational loan Rajeswari filed the writ petition, in which she stated that she required Rs 3.3 lakh towards tuition fees and hostel fees for the entire course period. But when she approached the bank, it rejected her plea in November 2008 on the grounds that her grandfather had defaulted on a tractor loan taken from the bank for which her father stands as guarantor. Therefore, it notified, Rajeswarai is not eligible for the loan.

Justice Suguna, did not get convinced with the bank's view and said the object of the educational loan scheme is to ensure that poor students can pursue higher education without any financial difficulty. Speculating that how Rajeswari can be punished for the default of her grandfather, the judge notified the unpaid balance of her grandfather's loan was only Rs 80,000, which amounts to about Rs 2 lakh now. She stated that the bank is in possession of a two-ground land furnished as surety for the earlier loan.

But, as a measure of protection for the educational loan, she asked Rajeswari to provide an affidavit stating that she will be clearing the loan within three years from the date of securing a job. Till then, the bank can keep hold of the land document. The judge directed the bank to sanction the loan within two weeks of Rajeswari giving the undertaking.

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