Bank closes student’s loan prematurely, sells it to Reliance

SBI says it is a case of technical error; student’s father under pressure to pay the fees

MADURAI, TAMILNADU, 11/07/2016. A. Balamurugan, father of hearing and speech impaired B. Rakesh, who petitioned Madurai District Collector on Monday. Rakesh's educational loan has been abruptly stopped by the bank mid-way. Photo: S. James

The father of a hearing and speech impaired engineering student has petitioned the Collector here on Monday alleging that the education loan from State Bank of India (SBI) for his son had been stopped before the end of its tenure and Reliance Asset Reconstruction Company (RARC) was calling him for repayment.

A. Balamurugan, an autorickshaw driver from Ponnagaram here, said that he was expecting the SBI to release fifth instalment of the loan for his son B. Rakesh (20), entering fifth year of the six-year integrated engineering course designed for speech and hearing impaired students at Kalasalingam University. Instead, he got calls from agents of RARC asking him to repay the loan. When he approached the SBI branch here, officials told him that the loan had been closed due to a ‘technical’ error and sold to RARC after being classified as a non-performing asset (NPA).

“Though they said they will look into it, there was no progress and I am now under pressure from the college to pay the fees within a week,” said Mr. Balamurugan.

He said after the first instalment of Rs. 82,000, he received the subsequent annual instalments of Rs 65,000 from the bank promptly till last year. “The annual fee is Rs 95,200. While the bank pays Rs. 65,000, I manage the remaining amount mainly by borrowing from other sources. It is impossible for me to pay the full amount myself,” said Mr. Balamurugan, whose three children were born with speech and hearing impairment.

He said he was surprised how the bank could sell his loan so soon to an asset reconstruction company.

Acknowledging the mistake, SBI officials said since the duration of engineering courses was generally four years, the loan must have been closed by oversight.

Accounting issues

“Our local head office (LHO) in Chennai has been informed. We are hoping to resolve the issue in a few days. Since the loan is already sold to RARC, there are accounting issues to be overcome” an official said.

On why the loan was sold to RARC, he said a large chunk of non-performing education loans was recently sold. The bank assumed it was a four-year course, treated the instalment disbursed last year as the final one and the grace period as over, the loan was sold, he said.