Collateral Free Loans – Educational Loan Scheme
Reserve Bank of India, RPCD (Department of Rural Planning and Credit Department), has released a Notifaction emphasizing the Banks to NOT TO INSIST ON COLLATERAL, for Educational Loans upto Rs4lacs/-
The Reserve Bank of India, Notification No. is RBI/2009-10/396
RPCD.SME&NFS.BC.No. 69/06.12.05 /2009-10 dt. April 12, 2010, addressed to The Chairman/Managing Director of All Scheduled Commercial Banks
Why do few Banks still insist on Collateral for Educational Loans even below Rs4lacs?
In my view, some answers are
- There is a high rate of default on the existing Education Loan Portfolio.
- Tendency of the borrowers to change their place of residence without informing the Bank of the new address.
Banks too are commercial institutions, answerable to their share-holders and would therefore like the Loans to be repaid back.
I would not like to comment as to why the borrowers default on their Educational Loans.
One way to minimize the Loan Defaults is to create a National Database of Educational Loan borrowers.
The best institution to maintain this would be CIBIL, as it has the necessary infrastructure in place. Banks and Borrowers are fairly familiar with CIBIL and CIBIL too is familiar with the Banks and Borrowers.
It is a win-win situation to all the participants in this Educational Loan cycle.
This I feel is more effective than
01) Establishing a separate institution for Educational Loans
02) Bar-coding of Exam Mark sheets with the Loan Details.
03) Requesting Educational Loan details in the Employment Application Form
Further, it should be noted that the first Educational Loan Notification was issued by Reserve Bank of India, RPCD (Department of Rural Planning and Credit Deparment), on April 28, 2001.
The Notification No. is RPCD.PLNFS.BC.NO.83/06.12.05/2000-01, dt 28/04/2001.
It is interesting to note that even in the first notification, the collateral free education loan amount was Rs4lacs, and even today i.e after 12 years, the amount is still Rs4lacs.
Isn’t this good news for the Bankers.