"Bank officials should be punished with imprisonment if they reject education loan or charge higher rate of interest than what is prescribed. In many cases, rural students are denied even an application for education loan," R. Thamaraiselvan, the DMK MP from Dharmapuri, told IANS Sunday.
He said that some malpractices adopted by officials of nationalised banks include demanding applicants to deposit money in a specified account or asking them to purchase a life insurance policy from a specific agent to get the education loan sanctioned.
Thamaraiselvan Saturday took up with Indian Overseas Bank's senior officials the case of V.M. Nithya, a rank holder of Periyar University, whose application for an education loan of Rs.20,000 was rejected by the bank.
Nithya's father V. Muniraj was forced to file a complaint with the Reserve Bank of India (RBI) after the bank did not reply to the applicant for nearly six months.
The IOB's Indur branch in the Salem region rejected Nithya's loan application, after the complaint was made to the central bank, on the ground that she had not scored the qualifying marks.
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"Nationalised banks have given thousands of crore of rupees to sick companies like Kingfisher Airlines. But when it comes to education loan to poor, various other considerations, including caste, comes into picture," Thamaraiselvan said.
"Private banks do not even entertain education loan applications from rural students," he added.
He said banks deny education loan citing service area concept, although the RBI has categorically said the concept is only for government-sponsored schemes.
Thamaraiselvan has moved a private member's bill titled 'The Education Loan Bill 2012', wherein he has proposed that the director of a bank or some other official be punished with a jail term of not more than one year or a fine equivalent to the loan amount if the education loan is refused.
It also proposes jail term for officials if the bank insists on a guarantee or charges higher interest rate than what is prescribed by the government or withholds degree/diploma or initiates recovery proceedings before completion of one year of securing a job by the borrower.
Thamaraiselvan said the bill would be taken up for discussion during the budget session of parliament.
According to him, the government should formulate a waiver scheme for education loan if a borrower does not get a job five years after completing the education.
"Till date, education loans to the tune of around Rs.52,000 crore have been sanctioned to around 20 lakh students. Banks by not following the norms force the students to default and classify the loan as non-performing," said K. Srinivasan, convenor of Education Loan Task Force (ELTF).
The ELTF is a team of volunteers taking up the cases of education loan rejections with the banks free of charge.
Srinivasan added that according to the Indian Banks' Association norms, the repayment period for a education loan is 10 years but most of the banks restrict it to three-five years, resulting in defaults.
According to Srinivasan, the banks are likely to put the student's future credit eligibility at risk with their ad hoc measures relating to education loan.
"When the banks refer the education loan accounts to CIBIL (Credit Information Bureau (India) Ltd.) the education loan defaulting students may not get even credit card or other loans from the banking sector," Srinivasan said.
He added that nationalised banks are losing an opportunity of building their brand value among young students as they are likely to become top executives or businessmen.
"Till date, we have sorted out the problems for around 1,000 students. ELTF is basically an online platform and it has nothing to do with banks or the government," Srinivasan said.