"No application should be turned down by the officer who is receiving it. It can only be turned down by one level higher. They will now penalise branch managers who turn down, say, 5/10 deserving applications which are overturned by a superior officer," Chidambaram told reporters here.
The Indian Bank Association (IBA) would come out with a new circular on education loans in the next few days, he said.
"Bank loan is the right of every student who meets the parameter. No bank can turn away an applicant. Every application for a bank loan must be received and acknowledged and every deserving candidate must be given the loan if the student meets the parameter," Chidambaram said.
Education loan is granted to Indian nationals for pursuing higher studies in India or abroad. As per its website, State Bank of India (SBI) gives loan up to Rs 10 lakh for studies in India, and Rs 30 lakh for education abroad.
Such loans are usually extended to candidates pursuing professional courses from approved universities or from autonomous institutions like IITs and IIMs among others.
Chidambaram said the government has moved a Cabinet note for setting up of education loan credit guarantee fund, which make available loans for students.
"The note will go to Cabinet in about a week or two and we hope to finalise the scheme and launch the fund before the end of the calendar year," he added.