From Our Correspondent
NEW DELHI  : The Union Ministry of Finance has finalised a scheme to create a Rs 2,500 crore credit guarantee fund to offset the risk of banks which are otherwise hesitant to grant education loans to students fearing non-recovery of the loan amount.

The corpus, to be called Credit Guarantee Fund Trust (CGFT) for Higher and Vocational Education, would encourage banks to release education loans to students with ease, a Finance Ministry official said on January 28. The Union cabinet will soon clear the scheme, he added.

The CGFT will ensure better flow of credit to deserving students and will guarantee education loans sanctioned under the Model Educational Loan Scheme developed by the Indian Banks Association. The scheme has been in operation since 2001, but has not picked up due to banks’ reluctance to lend.

The percentage of non-performing assets of banks is the highest in the education sector, a fact that is discouraging banks from lending to students. That explains why barely 7 per cent of the nearly 1.5 crore students enrolled in higher education courses currently avail educational loans from banks.

But soon this cause of reluctance will stand addressed. The high point of the CGFT initiative is that students (with annual family income below Rs 4.5 lakh) will be able to avail education loans up to Rs 7.5 lakh without giving any collateral security or third party guarantee.

The CGFT will cover the said loan extended by the bank to the extent of 75 per cent of the amount defaulted by the student. Banks can also approach the CGFT to cover education loans above Rs 7.5 lakh without taking any collateral security or third party guarantee in special cases involving deserving students. All the bank needs to do to avail of the credit guarantee is pay a nominal guarantee fee of 1 per cent per annum of the loan amount sanctioned by it.

“The trust will act as the risk pooling and risk minimizing body for banks so that they don’t have to worry about generating NPAs through loan non-recovery. By paying a nominal annual fee, banks can become eligible for credit guarantee. As much as 75 per cent of the defaulted loan amount will be returned as per the plan,” top HRD Ministry sources said.

In case of default, the CGFT will pay 75 per cent of the guaranteed amount as the first installment to the bank concerned and the balance will be paid after the conclusion of loan recovery proceedings by the lending banking institution. Currently, under the Model Loan Scheme, loans up to Rs 4 lakh are disbursed by banks without taking collateral security (residential property etc) and third party guarantee, though the parent must sign up as a co-borrower.

However, loans above Rs 4 lakh and up to Rs 7.50 lakh are currently secured by way of third party guarantee, which is very difficult for most students to give. That discourages students from seeking loans.

The broad parameters of the Scheme are:

(i) The scheme would be applicable for studies in technical and professional courses in India. The interest subsidy shall be linked with the existing Educational Loan Scheme of IBA and restricted to students enrolled in recognized professional courses (after Class XII) in India in Educational Institutions established by Acts of Parliament, other Institutions
recognized by the concerned Statutory Bodies, Indian Institutes of Management (IIMs) and other institutions set up by the Central Government.

(ii) Under the Scheme, interest payable by the student availing of the Educational Loan Scheme of the Indian Banks’ Association for the period of moratorium (i.e. course period, plus one year or six months after getting job, whichever is earlier) as prescribed under the Educational Loan Scheme of the Indian Banks’ Association, shall be borne by the Government. After the period of moratorium is over, the interest on the outstanding loan amount shall be paid by the student, in accordance with the provisions of the existing Educational Loan Scheme and as may be amended from time to time.

(iii) The benefits under the Scheme would be applicable to those students belonging to economically weaker sections, with an annual income upper limit of Rs 4.5 lakh per annum.

(iv) The interest subsidy under the Scheme shall be available to the eligible students only once, either for the first undergraduate degree course or the post graduate degrees/diplomas. Interest subsidy shall, however, be admissible for combined undergraduate and postgraduate courses.

(v) Interest subsidy under this scheme shall not be available to students who either discontinue the course midstream, due to any reason except  medical grounds, or to those expelled on disciplinary or academic grounds.

(vi) The National Minorities Development & Finance Corporation (NMDFC) has an Educational Loan Scheme for individual beneficiaries, which is implemented through State Channelizing Agencies (SCAs). The national Safai Karamcharis Finance and Development Corporation under the Ministry of Social Justice and Empowerment also provides educational loan to the students of the target group for higher education. Interest on Educational Loan provided under these two schemes shall also be subsidized for the period of moratorium.

(vii) Modalities for implementation and monitoring mechanism shall be finalized in consultation with the Canara Bank. There would be a tag/marker on the degree of the student indicating his repayment liabilities.

(viii) The scheme shall be applicable from the academic year 2009-2010.

The Scheme is expected to ease the financial burden on the target group of students to pursue technical and professional studies (after Class XII) in recognized institutions in India and thereby increase their access in these streams of education. This Scheme will benefit about 5 lakh students in getting technical and professional education.

Banks can't impose new terms to deny edu loan

CHENNAI : Madras High Court has ruled that Educational loan is a state welfare measure streamlined by the Reserve Bank of India and that the other banks can’t introduce new conditions to deny the facility to eligible students.

Justice K Suguna, directed the Tiruchi branch of the ICICI Bank Limited to give educational loan to petioner S Yoganathan, a Scheduled Caste student who had obtained admission in an MBA course in a private college.

The single judge bench ruled : “Educational loans are welfare measures to enable poor students to pursue higher education with the assistance of loan facilities provided by banks."

Amazed, the court said "here is a case where the loan sought by Yoganathan is rejected on wrong assumption and presumption. This cannot be accepted... The circular issued by the Reserve Bank of India is binding on ICICI Bank. Overlooking the guidelines, the bank cannot follow its own norms in the matter of sanction of educational loans.”

Yoganathan, who completed his BBA course with 56 per cent marks, got admission in MBA in Kavery Engineering College, Salem, under the government quota. As the tuition and boarding fees worked out to Rs 1.45 lakh, he sought an educational loan from ICICI Bank.

On June 16, the bank rejected the application, saying that Yoganathan wasn’t a meritorious candidate. Questioning the rejection, he filed the writ petition, stating that the April 28, 2001, circular of RBI didn’t talk about merit. It just required SC students to score at least 50 per cent marks to be eligible for the loan.

Justice Suguna pointed out that private banks were also bound by RBI guidelines. Since Yoganathan satisfied the eligibility norms prescribed by RBI, it wasn’t for the bank to deny him a loan. She then directed ICICI Bank to sanction the loan within 30 days.

K'nataka students get 6% subsidy on loans

BANGALORE : The government of Karnataka has decided to subsidize study loans for the students in the state, according to the state's Higher Education Minister, Mr Aravind Limbavali.

The state students seeking admissions to courses in Engineering, Architecture, Medical, Dental or Indian System of Medicine and Homeopathy (ISM&H) can avail loans up to Rs 5 lakh from any nationalised banks in the State with the government offering six per cent subsidy on the interest rates.

The scheme is to be executed by the Karnataka Examination Authority (KEA) which has been made the nodal agency to implement this scheme. The subsidy on the interest for the first year will be remitted by KEA to the bank directly, based on the certificate furnished by the KEA.

From the second year onwards, based on the certificate furnished by the head of the college, the subsidy will be remitted to concerned banks subject to certain terms and conditions.

To ensure affordable education to all students, the government has decided to deduct Rs 10,000 of the engineering fee.

The engineering fee for the entire course costs around Rs 25,000 of the which the government had announced a deduction of Rs 10,000 for the poor and meritorious students seeking admissions in government colleges with effect from the 2009-10 academic year.

About 20,000 students would be benefited from the fee subsidy measure, this year.