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Saturday, August 11, 2012

Revised Education Loan Scheme - July 2012


   Indian Banks’ Association
    
REVISED MODEL EDUCATIONAL LOAN SCHEME FOR PURSUING HIGHER EDUCATION IN INDIA AND ABROAD

1.         INTRODUCTION:

Education is central to the human resources development and empowerment in any country. National and State level policies are framed to ensure that this basic need of the population is met through appropriate public and private sector initiatives. While government endeavour to provide primary education to all on a universal basis, public funding of higher education is  not considered feasible. Cost of education has been going up in recent times and since the student has to bear most of the cost, there is a clear case for institutional funding in this area. This model education loan scheme is an attempt to bring out a viable and sustainable bank loan scheme to meet the aspirations of our society.

Knowledge and information would be the driving force for economic growth in the coming years. The current rate of economic growth of the country demands technically and professionally trained man power in large numbers. In this backdrop, loans for education is seen as investments for economic development and prosperity. The model Education Loan Scheme was developed by the Indian Banks’ Association to help meritorious students  pursue higher education in technical and professional courses. As the focus is on development of human capital, repayment of the loan is expected to come from future earnings of the student after completion of education. Hence the assessment of the loan will be based on employability and earning potential of  the student upon completion of the course and not the parental income/family wealth. 
Based on recommendations made by a Study Group, IBA had prepared a Model Educational Loan Scheme in the year 2001 which was advised to banks for implementation by Reserve Bank of India vide circular No.RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated April 28, 2001 along with certain modifications suggested by the Government of India. In line with the announcement made by the Hon'ble Finance Minister in his Budget Speech for the year 2004-05, IBA had communicated certain changes in the security norms applicable to education loans with limits above ₹ 4 lakhs and up to ₹ 7.5 lakhs. The scheme was further modified in the year 2007-08 based on experience gained in the operation of the scheme over the years.

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­With increased public awareness about the benefits of the education loan scheme, bank branches  are  receiving  more  and    more   applications for  loans every year.  This has also
____________________________Educational Loan Scheme_______________________
resulted in cases of customer grievances due to misinterpretation of the provisions of the scheme. This review exercise has been taken up to make the scheme more transparent and minimize scope for multiple interpretations leading to disputes.

2.                  OBJECTIVES OF THE SCHEME
The Educational Loan Scheme outlined below aims at providing financial support from the banking system to meritorious students for pursuing higher education in India and abroad. The main emphasis is that a  meritorious student, though poor, is provided with an opportunity to pursue education with the financial support from the banking system with affordable terms and conditions.

3.                  APPLICABILITY OF THE SCHEME:
The scheme detailed below could be adopted by all member banks of the Association or other banks and financial institutions as may be advised by the Reserve Bank of India. The scheme provides broad guidelines to the banks for operationalising the educational loan scheme and the implementing bank will have the discretion to make changes as deemed fit.

The scheme details are as under:

4.         ELIGIBILITY CRITERIA:
4.1 Student eligibility:
·               The student should be an Indian National
·                Should have secured admission to a higher education course in recognized institutions  in India or Abroad through Entrance Test/ Merit Based Selection process after completion of HSC(10 plus 2 or equivalent).  However, entrance test or selection purely based on marks obtained in qualifying examination may not be the criterion for admission to some of the post graduate courses or research programmes. In such cases, banks will have to adopt appropriate criteria based on employability and reputation of the institution concerned
     4.2    Courses eligible
a. Studies in India: (Indicative list)
·         Approved courses leading to graduate/ post graduate degree and P G diplomas  conducted by recognized colleges/ universities recognized
       by  UGC/ Govt./ AICTE/ AIBMS/ ICMR etc.
·         Courses like ICWA, CA, CFA etc.
·         Courses conducted by IIMs, IITs, IISc, XLRI. NIFT,NID etc.
  
·         Regular Degree/Diploma courses like Aeronautical, pilot training, shipping etc., approved by Director General of Civil Aviation/Shipping, if the course is pursued in India.
·         Approved courses offered in India by reputed foreign universities.
Note:

1.      The above list is indicative in nature. Banks may approve other job oriented courses leading to technical/ professional degrees, post graduate degrees/diplomas  offered by recognized institutions under this scheme.

2.      Courses other than the above offered by reputed institutions  may also be considered on the basis of employability.

(b) Studies abroad :-
·                   Graduation :                       For job oriented professional/ technical
courses offered by reputed universities.
·         Post graduation:          MCA, MBA, MS, etc.
·         Courses conducted by CIMA- London, CPA in USA etc.
·         Degree/diploma courses like aeronautical, pilot training, shipping etc provided these are recognized by competent regulatory bodies in India/abroad for the purpose of employment in India/abroad.
Reference: www.webometrics.info  (indicative only)
4.3       Expenses considered for loan :
        i.            Fee payable to college/ school/ hostel*
      ii.            Examination/ Library/ Laboratory fee
    iii.            Travel expenses/ passage money for studies abroad
    iv.            Insurance premium for student borrower, if applicable
      v.            Caution deposit, Building fund/refundable deposit supported by Institution bills/receipts. **
    vi.            Purchase of books/ equipments/ instruments/ uniforms***
  vii.            Purchase of computer at reasonable cost, if required for completion of the course***

viii.            Any other expense required to complete the course - like study tours, project work, thesis, etc***
    ix.            While computing loan required, scholarships, fee waiver etc., if any available to the student borrower may be taken into account.

Notes:
*        Reasonable  lodging and boarding charges  will be  considered in case the student chooses / is required to opt for outside accommodation.

**    These expenses could be considered subject to the condition that the amount does not exceed 10% of the total tuition fees for the entire course.

***  It is likely that expenditure under Item Nos. vi, vii & viii above may not be available in the schedule of fees and charges prescribed by the college authorities.  Therefore, a realistic assessment may be made of the requirement under these heads.  However, the maximum expenses included under vi, vii & viii may be capped at 20% of the total tuition fees payable for completion of the course.

5.         QUANTUM OF FINANCE:
Need based finance to meet the expenses worked out as per para 4.3 above will be considered taking in to account margins as per para 6 subject to the following ceilings:
- Studies in India         -          Maximum upto ₹ 10 lakhs.
- Studies Abroad          -          Maximum upto  ₹ 20 lakhs.
Note:
The ceilings fixed for studies in India and Abroad correspond to the limits fixed by the RBI for treatment as priority sector lending. Banks may consider higher quantum of loan on course  to course basis (eg: courses in IIMs, ISB etc). It may also be noted that even  loans in excess of ₹ 10 lakhs qualify for interest subsidy under Central Sector Interest Subsidy Scheme for loans up to ₹ 10 lakhs.

6.                   MARGIN:
Upto ₹ 4 lakhs                                    Nil

Above ₹  4 lakhs Studies in India      5%
                          Studies Abroad      15%

-    Scholarship/ assistantship to be included in margin.
-          Margin may be brought-in on year-to-year basis as and when disbursements  are made on a pro-rata basis.


7.                    SECURITY :

Upto ₹ 4 lakhs               Parents to be joint borrower(s).
                                          No security
Above ₹ 4 lakhs
and upto ₹ 7.5 lakhs   Besides the parent(s) executing the documents as     joint borrower(s) ,  collateral  security in the form of suitable third party guarantee will be taken. The bank may, at its discretion, in exceptional cases, waive third party guarantee if satisfied with the net-worth / means of parent/s who would be executing the document as joint borrower(s).
Above ₹ 7.5 lakhs         Parent(s) to be joint borrower(s)                                          Tangible collateral security of suitable value acceptable to bank,  along with the assignment of future income of the student for payment of instalments.
Note:-
·         The loan documents should be executed by both  the student and the parent/ guardian as joint-borrower.
·         The security can be in the form of land/ building/ Govt. securities/ Public Sector Bonds/Units of UTI, NSC, KVP, life policy, gold, shares/mutual fund units/debentures, bank deposit in the name of student/ parent/ guardian / any other third party  or any other tangible security acceptable to the bank with suitable margin.
·         Wherever the land/ building is already mortgaged, the unencumbered portion can be    taken as security on second charge basis provided it covers the required loan amount

8.         RATE OF INTEREST :
Interest to be charged at rates linked to the Base rate as decided by individual banks
·         Simple interest to be charged during the study period and up to commencement of repayment.
Note: Servicing of interest during study period and the moratorium period till commencement of repayment is optional for students. Accrued interest will be added to the principal amount borrowed while fixing EMI for repayment.


__________________________Educational Loan Scheme_________________________
9.                    APPRAISAL / SANCTION/ DISBURSEMENT :
·                Applications will be received either directly at bank branches or through on-line mode. Upon receipt of application, standard  acknowledgement giving a reference number will be issued. The acknowledgement will contain contact details of the bank official who, could be contacted in case of delay in disposal of application.
·                Normally, sanction/rejection will be communicated within 15 days of receipt duly completed application with supporting documents.
·                In the normal course, while appraising the loan, the future income prospect of the student only will be looked into.
·                Rejection of loan application, if any, shall be done with the concurrence of the controlling authority of the branch concerned and conveyed to the student stating reason for rejection.
·                Students may submit their loan applications either at the bank branches near to the residence of parents or to the educational institution.  However, after the loan is sanctioned, the cases be transferred to the bank branch near to the institution for follow up with student / institution.  The KYC compliance for the purpose has to be done by the branch nearest to the residence of  parents.
·                The loan to be disbursed in stages as per the requirement/ demand directly to the Institutions/ Vendors of  equipments/ instruments to the extent possible.

10.          REPAYMENT:
Repayment    holiday/Moratorium
Course period + 1 year or 6 months after getting job, whichever is earlier.
If the student is not able to complete the course within the scheduled time, extension of time for completion of course may be permitted for a maximum period of 2 years. If the student is not able to complete the course for reasons beyond his control, sanctioning authority may at his discretion consider such extensions as may be deemed necessary to complete the course. In case the student discontinues the course midway, appropriate repayment schedule will be worked out by the bank in consultation with the student/parent
·         The accrued interest during the repayment holiday period to be added to    the principal and repayment in Equated Monthly Instalments (EMI) fixed.
·         1% interest concession may be provided by the bank,  if  interest is serviced during  the  study   period  and   subsequent  moratorium  period  prior  to commencement of repayment. Repayment of the loan will be in equated monthly instalments for periods as under:
For loans upto ₹ 7.5 lakhs                - upto 10 years 
For loans above ₹ 7.5 lakhs              -  upto  15 years

·           While EMI based repayment is the generally accepted practice, many times the salary levels at the start of the career may not facilitate comfortable payment of EMI in certain cases (e.g. professionals like Doctors). Telescoping of repayment with stepped up instalments with passage of time may be considered in such cases.
Note: No prepayment penalty will be levied for prepayment of  loan any time during the repayment period.

11.              INSURANCE
Banks may, with the consent of the student, arrange for life insurance policy on the students availing Education Loan. Individual Banks may work out the modalities with insurance companies. 

12.       FOLLOW UP/MONITORING:
Banks to contact college / university authorities to obtain  progress report on the student at regular intervals in respect of those who have availed loans. In case of studies abroad, bank may obtain the SSN/Unique Identification Number (UIN)/Identity Card and note the same in the bank’s records. The UID number issued by UIDIA may also be captured in bank’s system as and when available. Banks to enter into Memorandum of Understanding (MoU) with the educational institutions to provide the educational loans to the students.  There should be an annual review of the asset quality of educational loans between banks and educational institution.

13.       PROCESSING CHARGES :
No processing / upfront charges may be levied on loans sanctioned under the scheme. (Banks may charge processing fee for considering loans for studies abroad. The fee would however, be refunded upon the student taking up the course)

14.              CAPABILITY CERTIFICATE:
Banks can also issue the capability certificate for students going abroad for higher studies. For this purpose financial and other supporting documents may be obtained from applicant, if required.
(Some of the foreign universities require the students to submit a certificate from their bankers about the sponsors' solvency/ financial capability, with a view to ensure that the sponsors of the students going abroad for higher studies are capable of meeting the expenses till completion of studies.)

15.              OTHER CONDITIONS:
15.1 Sanction of loan to more than one child from the same family
Existence of an earlier education loan to the brother(s) and/or sister(s) will not affect the eligibility of another meritorious student from the same family obtaining education loan as per this scheme from the bank.
15.2  Minimum Age
There is no specific restriction with regard to the age of the student to be eligible for education loan. However, if the student was a minor while the parent executed
documents for the loan, the bank will obtain a letter of ratification from him/her upon attaining majority.
15.3 Top up loans
Banks may consider top up loans to students pursuing further studies within the overall eligibility limit, if such further studies are commenced during the moratorium period of the first loan.  The repayment of the loan will commence after the completion of the second course and further moratorium period, as provided under the scheme. 
15.4 Joint Borrower
The joint borrower should normally be parent(s)/guardian of the student borrower. In case of a married person, joint borrower can be either spouse or the parent(s)/parents-in-law.

No Due Certificate

No due certificate will not be insisted upon as a pre-condition for considering education loan. However, banks may obtain a declaration/ an affidavit confirming that no loans are availed from other banks.

Disposal of loan application
Loan applications have to be disposed of in the normal course within a period of 15 days to 1 month, but not exceeding the time norms stipulated for disposing of loan applications under priority sector lending.

IBA Model Loan Scheme for Vocational Education and Training

Banks have introduced IBA Model Loan Scheme for Vocational Education and Training from 1st July 2012.  The circular issued by IBA and the scheme is given b elow.

sourece: http://www.iba.org.in/educational_loan.asp


Chief Executive

No. CE/209

31st May, 2012

To :
Chief Executives of all Member Banks

Dear Sirs,

IBA MODEL LOAN SCHEME FOR VOCATIONAL EDUCATION AND TRAINING

Please refer to our circular No. SB/CIR/10-21-VC/4715 dated 20th December, 2011              enclosing a ‘Model Educational Loan Scheme for Vocational Courses.  On subsequent interactions with the Dept. of Financial Services and the Prime Minister’s National Council on Skill Development under the Chairmanship of Mr. S Ramadorai brought out the need for bank loans for Skill Development training involving periods even lesser than 6 months.  It was informed that  National Council on Skill Development has ambitious plans to develop skilled work force in the country and around 25 lakh persons are expected to avail credit for vocational / skill development programmes in the next 3 years.  The Prime Minister’s office also sent us some suggestions for modifying the Model Scheme to make the bank scheme in line with the Govt. plan for Skill Development.  IBA also interacted with some of the Skill Development Institutes in Maharashtra for feedback and suggestions. 

The IBA Sub-Committee on Educational Loan Scheme considered the suggestions and the revised Model Scheme was placed before the IBA Managing Committee at its meeting held on 25th May, 2012.  The Managing Committee after discussions approved the changes in the Scheme including change in the title of the Scheme. The Model Educational Loan Scheme for Vocational Courses will now be called as ‘IBA Model Loan Scheme for Vocational Education and Training’.

A copy of the revised Model Scheme is enclosed for your perusal.  Member Banks may like to adopt and implement the Scheme with effect from 1st July, 2012, after taking the approval of the Bank’s Board.

While on the subject, Member Banks may kindly note that the Govt. is proposing to establish a Credit Guarantee Fund Trust to administer and operate Credit Guarantee Fund for loans granted by banks for Vocational Courses including Skill Development.  The details are being worked out.

Yours faithfully,


(K Ramakrishnan)

Encl. : Copy of revised Model Scheme.

sb/vocational courses/cir ces model loan sch for vocL courses.
c.c. to : 1) All SLBC Convenors
             2) All Members of the IBA Sub-Committee on Educational Loan Scheme
                                  

                              Indian Banks’ Association
IBA MODEL LOAN SCHEME FOR VOCATIONAL
EDUCATION AND TRAINING

 1.      INTRODUCTION

The IBA Model Educational Loan Scheme for pursuing higher studies in India & Abroad was formulated initially in the year 2001 and modified subsequently from time to time with the objective of facilitating pursuit of higher studies by meritorious students.  The focus was mainly on technical and professional courses in recognised Colleges and Universities.  The vocational courses offered by ITIs, ITCs, Polytechnics and other technical institutions / bodies were not covered in the Model Educational Loan Scheme (some banks do provide loans for pursuing 3 year diploma courses offered by Polytechnic Institutes).  However, in view of the initiatives being taken by the Govt. of India in skill development in recent years, a need was felt for providing institutional funding for the students undergoing specialized skill development programs in recognized institutions.  The Govt. has estimated that the country would require 10 to 15 million skilled workers every year to support the development process.  The initiatives being taken by the Govt. are for setting up  new training facilities, modernization of existing centres and intensive faculty development.  The “Model Loan Scheme for Vocational Education and Training” has been developed as an extension of the existing Model Educational Loan Scheme for pursuing higher education in India & Abroad, to support the national initiatives for skill development. 

2.   OBJECTIVE
The Model Loan Scheme for Vocational Education and Training aims at providing financial support from the banking system to those who, have the minimum educational qualification, as required by the institution / organization running the course eligible under the scheme.


3.  APPLICABILITY OF THE SCHEME
      The scheme could be adopted by all member banks of the Association or other banks and financial institutions as may be advised by the RBI.  The scheme provides broad guidelines to the banks for operationalising the  loan scheme and the implementing bank will have the discretion to make changes as deemed fit.

4.      ELIGIBILITY CRITERIA
4.1  Student Eligibility
-          The student should be an Indian National
-          Have secured admission in a course run or supported by a Ministry / Dept./ Organisation of the Govt. or a company / society / organization supported by National Skill Development Corporation or State Skill Missions / State  Skill Corporations, preferably leading to a certificate / diploma / degree, etc. issued by a Govt. organization or an organization recognized / authorized by the Govt. to do so.

4.2  Courses Eligible
Vocational / Skill development courses of duration from 2 months to 3 years run or supported by a Ministry / Dept. / Organisation of the Govt. or a company / society / organization supported by National Skill Development Corporation or State Skill Missions / State Skill Corporations, preferably leading to a certificate / diploma / degree, etc. issued by a Govt. organization or an organization recognized / authorized by the Govt. to do so. .  State Level Bankers Committee (SLBC) / State Level Coordination Committee (SLCC) may add other skill development courses / programmes, having good employability.

4.3  Minimum Age
There is no specific restriction with regard to the age of the student to be eligible for the loan.  However, if the student was a minor, while the parent executes documents for the loan, the bank will obtain a letter of ratification from him / her upon attaining majority.



5.      QUANTUM OF FINANCE
Need based finance to meet expenses as worked out under para 6 below will be considered subject to the following ceilings :

-                      For courses of duration upto 3 months                       ₹ 20,000/-
-                      For courses of duration 3 to 6 months                        ₹ 50,000/                               
            -           for courses of duration 6 months to 1 year                 ₹ 75,000/-
            -           for courses of duration above 1 year                          ₹ 1,50,000/-

Banks may consider sanction of higher limits for courses of duration above one year, if required, for specific courses offered by reputed institutions having regard to the nature of such courses and employability (ability to repay out of job earnings).

6.      EXPENSES CONSIDERED FOR LOAN
1.                  Tuition / course fee .
2.                  Examination / Library / Laboratory fee
3.                  Caution deposit
4.                  Purchase of books, equipments and instruments
5.                  Any other reasonable expenditure found necessary for completion of the course. (As such courses are localized boarding, lodging may not be necessary.  However, wherever it has been found necessary, the same could be considered on merits)

7.   MARGIN
            Nil

   8.   RATE OF INTEREST
Interest rate to be charged linked to the base rate of banks as decided by the individual banks or at reduced rate, if an interest subsidy is provided by the Central / State Govt. to all or a class of beneficiaries proposed to be targeted. Simple Interest will be charged during the study period and upto commencement of repayment.


Note : 
·         Servicing of interest during study period and the moratorium period till commencement of repayment is optional for students.
·         1% interest concession may be provided by the bank, if interest is serviced during the study period and subsequent moratorium period prior to commencement of repayment. 


9.       PROCESSING CHARGES
Nil

10.   SECURITY
No collateral or third party guarantee will be taken.  However, the parent will execute loan document along with the student borrower as joint borrower.

11.   MORATORIUM PERIOD
Upon completion of the course, repayment will start after a moratorium period as indicated below :
- for courses of duration upto 1 year  -           6 months from the completion of the
                                                                        course.
- for courses of duration above 1 year-           12 months from the completion of
                                                                        the course.

12.   REPAYMENT
The loan will be repaid after the moratorium period as indicated in para 11 in Equated Monthly Instalments (EMIs) as follows :
-           courses upto 1 year        -        In  2 to 5 years
-           courses above 1 year      -        In  3 to 7 years.

13.   INSURANCE
Optional at the requirement of the borrower.


     14.  PREPAYMENT
The borrower can repay the loan any time after commencement of repayment before having to pay any prepayment charges.

15.  OTHER TERMS & CONDITIONS
Other terms and conditions as applicable to the “IBA Model Educational Loan Scheme for pursuing higher education in India and Abroad” will be applicable to this scheme also.

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