Thursday, February 23, 2017

Memorandum submitted to MOS (Finance & CA) on the Education Loan issues

An interactive Session was held with Shri Arjun Ram Meghwal, Hon'ble MOS (Finance &CA) on 17th February 2017 at Chennai to discuss the education loan issues.  Hon'ble Minister patiently listened to the grievances of all the bankers and the social workers.  He also promised to discuss all the issues at Delhi with officials and to find solutions.

ELTF subsequent to this event has submitted a detailed letter to Hon'ble Minister.  Please read the text of the letter sent by ELTf.

22 Feb 2017

Shri Arjun Ram Meghwal ji
Hon’ble Union Minister of State (Finance & Corporate Affairs)
Government of India
New Delhi

Dear Hon’ble Shri Arjun Ram Meghwal ji

Brief Report on Interactive Session with Shri Arjun Ram Meghwal, Hon’ble Union Minister of State (Finance & Corporate Affairs)

The eMagazine PreSense and Education Loan Task Force (ELTF) organised an interactive session with Shri Arjun Ram Meghwal, Hon’ble Union Minister of State (Finance & CA) on 17th February 2017 at Clarion Hotel President, Chennai.  ELTF is one of the social initiatives of the eMagazine PreSense, and has been operating since 2010.  PreSense and ELTF thank Hon’ble Minister for sparing his valuable time and interacting with all participants.

NGOs and social workers who are active in the Education Loan concept, and senior officials from 39 Banks participated.  Prime Point Srinivasan, Editor in Chief of PreSense and Convenor of ELTF welcomed the gathering.

In his welcome address, Srinivasan outlined the difficulties faced by parents/students right from the application stage to the repayment stage of Education Loan.  The Hon’ble Minister also patiently listened to the grievances voiced by the social workers and the banks.

Shri Arjun Ram Meghwal in his address, assured that he would discuss all the issues with the bureaucrats at New Delhi and sort out all the difficulties.  He said he would also involve Education Loan activists like Prime Point Srinivasan in the meetings.  He advised all the Banks in the meantime, to nominate a Nodal Officer at Regional Offices and a Grievances Cell at Head Offices exclusively for Education Loan.

Srinivasan announced that PreSense and ELTF would institute an Award for a Bank Official and a Student for excellence in implementation and utilisation of Education Loan Scheme respectively. 

Broadly the following points emerged during the interaction session.

Application Stage

1.            Bank Branches do not attend to the students empathetically and do not guide them properly.  The students are made to run from pillar to post and the processing is unduly delayed, as against the IBA norm of 15 to 30 days.  Branches follow the Service Area Norm as against RBI guidelines.
2.            The Vidyalakshmi Portal, which was launched by the Hon’ble Finance Minister is not being implemented effectively.
3.            Branches demand guarantee and collateral security even for loans less than Rs.7.50 lakhs, which are security-free.

Interest Subsidy

4.            Although the Government of India assures full (100%) interest subsidy for the moratorium period, in practice, only 25 to 30% is being reimbursed.  The students are forced to pay the difference amount.
5.            The Interest Subsidy Scheme is available only for professional and technical courses.  The scheme should be extended to other vocation courses pursued by poor students after the 10th standard of schooling.
6.            It is recommended that instead of the Interest Subsidy Scheme, ‘Interest Free’ Loan may be considered, to reduce the burden on poor students.
7.            Bank Branches often fail to submit their claims for interest subsidy to the Government, thus depriving especially poor students from enjoying the benefit.
8.            Interest Subsidy for foreign studies is available only for Minority students.  This should be extended to all eligible poor students, irrespective of caste and religion.
9.            Some of the Banks retain the subsidy amount with themselves and credit it to the students’ loan accounts only after a few months.  In the meanwhile, the student is compelled to pay the interest on his loan account. 

Management of Loan Accounts

10.         Several complaints are received that Branches do not provide proper information and guidance to the students.  In many cases, bank officials misguide the students due to lack of awareness.
11.         There is no communication between the branches and the students after availing the loan. 
12.         Students do not receive any communication from the Banks about the repayment schedule, after completion of their study.
13.         The rate of interest charged by the banks is high.

Non Performing Assets

14.         Banks ‘artificially’ create NPAs.  The interest subsidy portion not received from the Government is loaded on to the student borrower’s loan account and treated as NPA.
15.         Although the IBA Scheme provides for a 15-year repayment period with flexible and telescopic EMI, almost all the branches force the students to repay within 3 to 5 years.  Thus the students tend to commit default.  Within 3 months, the loan account is also classified as NPA, resulting in the students’ earning a poor credit rating.
16.         The IBA Scheme provides for a one-year moratorium period after the study period and additional moratorium of six months each, three times during the currency of the loan. None of the banks offer this concession to the needy students, thus adding the burden of the potential NPA to the students.
17.         Some of the banks like the State Bank of India are hasty in handing over defaulted loan accounts to Asset Reconstruction Companies (ARCs) at discounted prices, while hesitating to extend legitimate concessions to the students.  Some of the students have committed suicide due to harassment by ARCs.
18.         Some banks shame the students with meagre default by displaying their photos in public places like criminals.  This is a human right violation.  Recently, Human Rights Commission levied a penalty of Rs.1 lakh on Central Bank of India for this type of shaming the student in public places.

Thirteen Suggestions from ELTF
  1. The Government should ensure 100% reimbursement of Interest Subsidy.   The amount not paid by the Government should not be loaded to the Loan Account of the student. 
  2. Separate norms can be fixed for Education Loans for classification of NPAs. 
  3. Since the Government of India reimburses Interest Subsidy, CAG Auditing of Interest Subsidy Management should be carried out periodically at individual bank level.
  4. A new Institution to provide refinance for all Education Loans should be set up, in the lines of NABARD and SIDBI. 
  5. The rate of interest should be reduced to a minimum level.  A high level committee of all stakeholders should be set up to examine the present education loan and interest subsidy management.
  6. IBA and Banks should take interest in creating awareness among students and branch officials. Banks should hold periodical meetings with student borrowers to develop a good relationship.  
  7. There should be a Nodal Officer to redress the grievances at the Regional Offices and Head Offices of all banks, RBI and the Ministry of Finance.  
  8. Banks should stop handing over defaulted loans to Private Agencies to harass the students for repayment. The banks should not shame the defaulted students by displaying their photos in public places.  Instead they should adopt legal methods for recovery. 
  9. A possible nexus between Banks and Asset Recovery Companies (ARC) could be examined from the vigilance angle.  
  10. From the data submitted by Finance Ministry to Lok Sabha in Feb 2017, there is no uniformity of disbursements of Education Loans. 
  11. Some Public Sector Banks and Private Banks do not effectively participate in this scheme. Some States do not get adequate share of the education loan. The imbalance may be examined. 
  12. A ‘National Student Registry’ may be set up for all students, linking their Aadhar Cards.  Banks may be allowed to access the Registry using the Aadhar Card identity of the student, to get updates about the student. 
  13. The rulings given by High Courts and Supreme Courts should be scrupulously followed by all banks in the respective states or the country.  Presently, students are forced to approach the Hon’ble Courts for the same issue on which rulings have already been given

Yours faithfully,
K. Srinivasan
Editor in Chief, PreSense
Convenor, Education Loan Task Force (ELTF)


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