Kerala HC Condemns Bank on Rejecting Educational Loan to Student on Parents Inability to Repay, Directs Immediate Disbursement
The Kerala High Court in Devika Soniraj vs The Zonal Manager, Bank of India and Anr. — WP(C) no. 6593 of 2021— directed the respondent to disburse the educational loan to the petitioner, a second-year BAMS (Bachelor of Ayurveda Medicine and Surgery) student whose loan request was rejected by the bank based on the financial position of the petitioner and her father as they would not be able to pay the deficit fee to the college and the petitioner in such case wouldn’t be able to complete the course thereby affecting her “projected future earnings”.
The Single Judge Bench of Justice P B Suresh Kumar held the said decision to deny the request for an educational loan to be contrary to the purpose of the educational loan scheme and observed:
“…in so far as the repayment possibilities of the loan to be disbursed under the scheme are contemplated to be made not on the financial position of the parents, but solely on the projected future earnings of the students on employment after education, I am of the view that the stand of the bank that the family of the petitioner may not be in a position to pay the deficit fee payable by the petitioner for the course and therefore the petitioner is not entitled to the loan applied for, is unsustainable in law.”
To ensure that meritorious candidates pursue higher education despite financial constraints, the Central Government had taken a policy decision pursuant to which a Model Educational Loan Scheme was framed by the Indian Banks’ Association (IBA). Via a circular dated 28th April 2001, the Reserve Bank of India (RBI) forwarded the said Model Scheme to all the Banks in the country. Thereafter, along with other banks, the Bank of India formulated its educational loan scheme in line with the said Model Scheme and suggestions of the Central Government.
In 2019, the student petitioner got admission in Poomulli Neelakandan Namboothiripad Memorial Ayurveda Medical College as per the centralized allotment process of the Kerala Government based on her rank in the National Eligibility Cum Entrance Test (NEET), 2019. Out of the total fee payable for the BAMS course, i.e., Rs. 16,32,325, the petitioner was able to pay the first-year fee and part of the second-year fee. Unable to pay the remaining fee, the petitioner and her father applied for an educational loan of Rs. 7.5 lakhs. The loan for the entire balance fee could not be applied for as the Educational Loan Scheme of the Bank required applicants to provide a collateral security for loans exceeding Rs. 7.5 lakhs. The petitioner’s request for the loan was rejected by the bank on account of lack of satisfactory evidence to show that she and her father will be able to pay the deficit fee.
Aggrieved, the petitioner filed a writ petition before the Kerala High Court.
The court observed that the Model Scheme has been revised a number of times over the years and the banks have accordingly incorporated the necessary changes in their respective loan schemes. As per the revised guidance notes on the Model Scheme issued by the IBA in 2015, the banks have to evaluate the loan application based on the “projected future earnings of the student on employment after education” and not based on the financial position of the student’s parents.
The respondent submitted that as per the Model scheme, the petitioner’s father should have made a disclosure in the application regarding his liabilities to other banks and as he failed to do so, the petitioner’s application is not “bonafide”. Rejecting this contention, the court held:
“If the ability of the parents of the applicant to repay the loan cannot be a consideration for granting an educational loan, according to me, the liability, if any, of the parents shall not also be an impediment for the bank in considering an application for educational loan. As such, the contention of the bank that since the father of the petitioner has not disclosed his liabilities in the application, the application of the petitioner cannot be considered as one preferred bonafide cannot be accepted, especially when the bank does not dispute the eligibility of the petitioner for the educational loan applied for by her.”
In conclusion, the Kerala High Court allowed the writ petition, held that request for educational loan cannot be denied based on the financial position of the student’s parents, and directed the respondent to immediately disburse the educational loan to the student petitioner.
Vaibhav Karadale | Research Intern | EduLegaL