“Banks can't gamble with public money by funding them”

The Madras High Court Bench here on Friday upheld the validity of a decision taken by Indian Banks Association that henceforth students who had secured less than 60 per cent of marks in qualifying examinations and secured seats in private colleges under the management quota would not be eligible for availing education loan.

Dismissing a batch of writ petitions as well as a writ appeal, a Division Bench comprising Justice R. Banumathi and Justice B. Rajendran agreed with Justice V. Ramasubramanian that banks could not be forced to gamble with public money by funding non-meritorious students whose chances of getting employed and repaying the loans were less. The Division Bench was of the view that the general principles of lending such as inquiring into the reputation of a borrower and his capacity to repay could not be given a go by in the case of education loan, especially when statistics revealed a rise in default of repayment, and non-performing assets (NPA) in this category being as high as six per cent.

Writing the judgement for the Bench, Ms. Justice Banumathi agreed with the advocates C. Jawahar Ravindran and R. Pandivel appearing for Canara Bank and State Bank of Travancore respectively that though right to education had been guaranteed in terms of Articles 21A and 41 of the Constitution, there was no inherent right to education loan.

The judge also said that the IBA had been reasonable in deciding that students who had secured admission under State selection process but opt for ‘management quota' in order to get a different branch or stream of their choice could be considered for grant of education loan. She rejected the contention that denying loans to less meritorious candidates would defeat the object of inclusive growth in the field of education.

Ms. Justice Banumathi said that Mr. Justice Ramasubramanian had succinctly summarised the entire gamut of issue involved by stating that “if a student has employment potential, the loan may not become a non-performing asset. But a student, who is not meritorious, may himself turn out to be a non-performing asset both to his parents and to the bank.”

She also pointed out that the IBA in its revised guidelines for issuing educational loans had instructed all banks to make a request to educational institutions to communicate the academic achievements and placement details of students in order to help the banks in tracking the academic progress of the students and advice them appropriately. “This will strengthen the communication channel and bond between the student and the bank branch,” the IBA had said. It also asked banks to obtain local references who had close relationship with the borrowers apart from other details such as PAN card and UID card numbers for the purpose of tracking.