The Kerala High Court has observed that nationalised banks and scheduled banks would not be justified in framing conditions such as CIBIL score of co-borrowers for sanctioning priority sector loans such as education loan so as to defeat the very purpose of grant of such loans.
The court made the observation while recently allowing a writ petition filed by two students against rejection of their applications by the State Bank of India for education loan on the grounds that the credit history of the co-borrowers (parents in this case) was not up to the mark.
The court pointed out that the the Reserve Bank of India (RBI), in public interest, had issued Reserve Bank of India (Priority Sector Lending Targets and Classification) Directions, 2020. In it, the direction four categorised education as a priority sector and direction 11 stated that loans to individuals for educational purposes, including vocational courses, not exceeding ₹20 lakh would be considered as eligible for priority sector classification. When banks disburse loans as priority sector loans, the eligibility criteria fixed for sanction of such loans should necessarily have a nexus with the object sought to be achieved, the court added.
Observing that the circular issued by the RBI on the credit information report of the borrowers would indicate that the circular was primarily intended to apply to commercial borrowers, the court reiterated its earlier observation that for educational loans, the repayment possibilities were 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 State Bank of India submitted that the educational loan policy of the bank was that the loan would be sanctioned jointly in the name of a student and his/her parents/guardians. The parent/guardian would be a co-borrower of the loan. The bank had to ensure that the co-borrower had necessary credit discipline. The bank had the prerogative to grant loan depending upon the credit information report of co-borrower.
