Point of Law: For educational loans, the repayment possibilities are to be decided not on the financial position of the parents but solely on the projected future earnings of the students on employment after education.

JUDGMENT :

N. NAGARESH, J.

1. The petitioners are aggrieved by the denial of education loan. The petitioner in W.P. (C) No. 3646/2022 wanted to study Post Graduate Diploma in Management (Securities Market) in the National Institute of Securities Markets (NISM), Navi Mumbai. The petitioner submitted Ext.P1 application for education loan of Rs. 7,30,000/- to the 2nd respondent-Manager of State Bank of India. The petitioner had submitted all documents required by the Bank in support of the application. The Bank, however, rejected the loan application submitted by the petitioner. The 2nd respondent rejected the application for education loan for the reason that the CIBIL score of the co-applicant is not up to the mark. The petitioner challenges Ext.P6 communication and seeks to direct the 2nd respondent to process his loan application.

2. The petitioner in W.P. (C) No. 4821/2022 wanted to study MBA in Happy Valley Business School, Coimbatore, affiliated to Annamalai University, Chennai. The petitioner submitted application for sanction of education loan of an amount of Rs. 3,96,000/- from the respondent-Branch Manager of the State Bank of India. The petitioner submitted all the requisite documents in support of her application. The respondent, however, issued Ext.P5 letter stating that the CIBIL score of the co-borrower is less than 685. The petitioner was required to resubmit the application with a co-borrower of satisfactory credit history.

3. The petitioners state that the Reserve Bank of India had affirmed that education loan is a futuristic loan and the aim of the educational assistance is for providing financial support from the banking system to deserving/meritorious students for pursuing higher education in India and abroad. Rejection of the loan application submitted by the petitioners goes against the mandate given by the Reserve Bank of India through their various Circulars.

4. The petitioners contended that this Court considered the issue of denial of educational loan on the basis of low credit score of the guarantors. This Court in Pranav S.R. vs. The Branch Manager, State Bank of India and Another, 2020 KHC 4695 held that unsatisfactory credit scores of the parents of the petitioner cannot be a ground to reject an educational loan application in view of the fact that the repayment capacity of the petitioner after his education should be the deciding factor. Therefore, the respondents are compellable to sanction and disburse the educational loan applied for by the petitioners.

5. The respondents vehemently opposed the writ petition. The respondent-Bank submitted that the educational loan policy of the State Bank of India is that the loan would be sanctioned jointly in the name of the student and his/her parents/guardians. The parent/guardian would be a co-borrower in the loan. The Bank has to ensure that the co-borrower has necessary credit discipline. The Bank has the prerogative to depend upon the Credit Information Report.

6. The respondent stated that Ext.R2(a) Circular dated 27.06.2014 issued by the Reserve Bank of India requires that banks/financial institutions should include in their credit appraisal process/loan policies, suitable provisions for obtaining Credit Information Reports from one or more of the Credit Information Companies so that the credit decisions are based on information available in the system. The Bank processed the application submitted by the petitioners and it was found that the credit history of co-borrowers is not up to the mark.

7. The educational loans, along with instalment and leases, and small business facilities and commitments, are classified as retail loans as per Ext.R2(b) Circular issued by the Reserve Bank of India, contended the respondents. Consequently, in Ext.R2(c) Master Circular dated 20.03.2021 issued by the State Bank of India, it was provided that Borrower/Co-borrower/Guarantor should not have any adverse credit history. In case of secured loans, CIBIL Score should be -1 or