SHRC order on education loans

The State Human Rights Commission (SHRC) has condemned the common banking practice of exacting hefty and non-returnable insurance payments from students as a prerequisite for sanctioning education loans.

SHRC member K. Mohankumar said education loans were collateral-free and the prevalent banking custom was an infringement of the human rights of students and their parents.

He ordered the State and Union governments to review the matter at a policy level to stop the illegal practice. The commission observed that banks often exacted up to 10 per cent of the total loan amount sought by students as non-returnable insurance payment. The payment of the insurance was often set as a pre-condition to sanction the educational loan.

The commission had issued the direction after hearing a petition filed by Mohanan Pillai, from Chittayam in Pathanamthitta district. Mr. Pillai deposed that he had approached the Indian Overseas Bank for an educational loan of Rs.3,21,840. He told the commission that the bank forcibly made him join a non-returnable insurance schemed named “Vidyabhyasa Suraksha” as a condition for sanctioning the loan.

Mr. Pillai told the commission that he was made to pay Rs.31,000 to the bank as insurance fee, almost 10 per cent of the loan amount he had applied for. Mr. Pillai alleged that the forced insurance payment was akin to a hidden charge.

The bank officials made him wait for hours. They did not give him time to go through the various documents he was made to sign, he deposed in court.

The commission observed that such practices put unreasonable burden on students. Banks and insurance companies stood to benefit hugely from such charges. Students who take out an education loan are already required to pay a high interest of 12 percent.

The policy of banks to tax them additionally by slapping hefty and non-returnable insurance charges as a pre-condition to sanction loans was illegal, he said.

At least, the insurance charge should be waived or reduced for students who promptly paid back their loans. Mr. Mohankumar ordered the Chief Secretary and the Education Secretary to look into the matter urgently and do the needful. The State government was bound to protect the human rights of students and parents, he said in his order.

Banks exact up to 10% of loan amount as insurance payment

Practice a violation of human rights of students, parents