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CHAPTER NO: 1

UNIVERSAL PROSPECTIVE OF BANKING

INDUSTRY

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1.1 INTRODUCTION:-

A bank is a financial intermediary that creates credit by lending money to a

borrower, thereby creating a corresponding deposit on the bank's balance sheet.

Lending activities can be performed either directly or indirectly through capital

markets. Due to their importance in the financial system and influence on

national economies, banks are highly regulated in most countries. Most nations

have institutionalized a system known as fractional reserve banking under

which banks hold liquid assets equal to only a portion of their current liabilities.

In addition to other regulations intended to ensure liquidity, banks are generally

subject to minimum capital requirements based on an international set of capital

standards, known as the Basel Accords.

Banking in its modern sense evolved in the 14th century in the rich cities

of Renaissance Italy but in many ways was a continuation of ideas and concepts

of credit and lending that had their roots in the ancient world. In the history of

banking, a number of banking dynasties — notably, the Medicis, the Fuggers,

the Welsers, the Berenberg and the Rothschild — have played a central role

over many centuries. The oldest existing retail bank is Monte dei Paschi di

Siena, while the oldest existing merchant bank is Berenberg Bank.

1.2 HISTORY:-

Banking begins with the first prototype banks of merchants of the ancient

world, which made grain loans to farmers and traders who carried goods

between cities. This began around 2000 BC in Assyria and Babylonia. Later,

in ancient Greece and during the Roman Empire, lenders based in temples made

loans and added two important innovations: they accepted deposits and changed

money. Archaeology from this period in ancient China and India also shows

evidence of money lending activity.

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The origins of modern banking can be traced to medieval and

early Renaissance Italy, to the rich cities in the north like Florence,

Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi families dominated

banking in 14th-century Florence, establishing branches in many other parts

of Europe. One of the most famous Italian banks was the Medici Bank, set up

by Giovanni di Bicci de' Medici in 1397. The earliest known state deposit

bank, Banco di San Giorgio (Bank of St. George), was founded in 1407

at Genoa, Italy.

Modern banking practices, including fractional reserve banking and the issue

of banknotes, emerged in the 17th and 18th centuries. Merchants started to store

their gold with the goldsmiths of London, who possessed private vaults, and

charged a fee for that service. In exchange for each deposit of precious metal,

the goldsmiths issued receipts certifying the quantity and purity of the metal

they held as a bailee; these receipts could not be assigned; only the original

depositor could collect the stored goods.

Gradually the goldsmiths began to lend the money out on behalf of

the depositor, which led to the development of modern banking

practices; promissory notes (which evolved into banknotes) were issued for

money deposited as a loan to the goldsmith. The goldsmith paid interest on

these deposits. Since the promissory notes were payable on demand, and the

advances (loans) to the goldsmith's customers were repayable over a longer time

period, this was an early form of fractional reserve banking. The promissory

notes developed into an assignable instrument which could circulate as a safe

and convenient form of money backed by the goldsmith's promise to

pay, allowing goldsmiths to advance loans with little risk of default. Thus, the

goldsmiths of London became the forerunners of banking by creating new

money based on credit.

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The Bank of England was the first to begin the permanent issue of banknotes, in

1695. The Royal Bank of Scotland established the first overdraft facility in

1728. By the beginning of the 19th century a bankers' clearing house was

established in London to allow multiple banks to clear transactions.

The Rothschild‘s pioneered international finance on a large scale, financing the

purchase of the Suez Canal for the British government.

1.3 BANKING ACTIVITIES:-

a) Standard activities:-

Banks provide different payment services, and a bank account is considered

indispensable by most businesses and individuals. Non-banks that provide

payment services such as remittance companies are normally not considered as

an adequate substitute for a bank account.

Banks borrow money by accepting funds deposited on current accounts, by

accepting term deposits, and by issuing debt securities such

as banknotes and bonds. Banks lend money by making advances to customers

on current accounts, by making instalment loans, and by investing in marketable

debt securities and other forms of money lending.

Banks provide different payment services, and a bank account is considered

indispensable by most businesses and individuals. Non-banks that provide

payment services such as remittance companies are normally not considered as

an adequate substitute for a bank account.

Banks can create new money when they make a loan. New loans throughout the

banking system generate new deposits elsewhere in the system. The money

supply is usually increased by the act of lending, and reduced when loans are

repaid faster than new ones are generated. In the United Kingdom between 1997

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and 2007, there was an increase in the money supply, largely caused by much

more bank lending, which served to push up property prices and increase

private debt. The amount of money in the economy as measured by M4 in the

UK went from £750 billion to £1700 billion between 1997 and 2007, much of

the increase caused by bank lending. If all the banks increase their lending

together, then they can expect new deposits to return to them and the amount of

money in the economy will increase. Excessive or risky lending can cause

borrowers to default, the banks then become more cautious, so there is less

lending and therefore less money so that the economy can go from boom to bust

as happened in the UK and many other Western economies after 2007.

b) Range of activities

Activities undertaken by banks include personal banking, corporate

banking, , trading, commodity, trading in equities, futures and options

trading and money market trading.

c) Channels

Banks offer many different channels to access their banking and other services:

Automated teller machines

A branch is a retail location

Call centre

Mail: most banks accept cheque deposits via mail and use mail to

communicate to their customers, e.g. by sending out statements

Mobile banking is a method of using one's mobile phone to conduct banking

transactions

Online banking is a term used for performing multiple transactions,

payments etc. over the Internet

Relationship managers, mostly for private banking or business banking,

often visiting customers at their homes or businesses

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Telephone banking is a service which allows its customers to conduct

transactions over the telephone with automated attendant or when requested

with telephone operator

Video banking is a term used for performing banking transactions or

professional banking consultations via a remote video and audio connection.

Video banking can be performed via purpose built banking transaction

machines (similar to an Automated teller machine), or via a video

conference enabled bank branch clarification

DSA is a Direct Selling Agent, who works for the bank based on a contract.

Its main job is to increase the customer base for the bank

1.4 BANKS IN THE ECONOMY

a) Economic functions:

1. Issue of money, in the form of banknotes and current accounts subject

to check or payment at the customer's order. These claims on banks can

act as money because they are negotiable or repayable on demand, and

hence valued at par. They are effectively transferable by mere delivery,

in the case of banknotes, or by drawing a check that the payee may bank

or cash.

2. Netting and settlement of payments – banks act as both collection and

paying agents for customers, participating in interbank clearing and

settlement systems to collect, present, be presented with, and pay

payment instruments. This enables banks to economize on reserves held

for settlement of payments, since inward and outward payments offset

each other. It also enables the offsetting of payment flows between

geographical areas, reducing the cost of settlement between them.

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3. Credit intermediation – banks borrow and lend back-to-back on their own

account as middle men.

4. Credit quality improvement – banks lend money to ordinary commercial

and personal borrowers (ordinary credit quality), but are high quality

borrowers. The improvement comes from diversification of the bank's

assets and capital which provides a buffer to absorb losses without

defaulting on its obligations. However, banknotes and deposits are

generally unsecured; if the bank gets into difficulty and pledges assets as

security, to rise the funding it needs to continue to operate, this puts the

note holders and depositors in an economically subordinated position.

5. Asset liability mismatch/Maturity transformation – banks borrow more on

demand debt and short term debt, but provide more long term loans. In

other words, they borrow short and lend long. With a stronger credit

quality than most other borrowers, banks can do this by aggregating

issues (e.g. accepting deposits and issuing banknotes) and redemptions

(e.g. withdrawals and redemption of banknotes), maintaining reserves of

cash, investing in marketable securities that can be readily converted to

cash if needed, and raising replacement funding as needed from various

sources (e.g. wholesale cash markets and securities markets).

6. Money creation – whenever a bank gives out a loan in a fractional-

reserve banking system, a new sum of virtual money is created.

b) Bank crisis

Banks are susceptible to many forms of risk which have triggered

occasional systemic crises. These include liquidity risk (where many

depositors may request withdrawals in excess of available funds), credit

risk (the chance that those who owe money to the bank will not repay it),

and interest rate risk (the possibility that the bank will become unprofitable,

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if rising interest rates force it to pay relatively more on its deposits than it

receives on its loans).

Banking crises have developed many times throughout history, when one or

more risks have emerged for a banking sector as a whole. Prominent examples

include the bank run that occurred during the Great Depression, the

U.S. Savings and Loan crisis in the 1980s and early 1990s,

the Japanese banking crisis during the 1990s, and the sub-prime mortgage

crisis in the 2000s

1.5 SIZE OF GLOBAL BANKING INDUSTRY

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009

financial year to a record US$96.4 trillion while profits declined by 85% to

US$115 billion. Growth in assets in adverse market conditions was largely a

result of recapitalization. EU banks held the largest share of the total, 56% in

2008/2009, down from 61% in the previous year. Asian banks' share increased

from 12% to 14% during the year, while the share of US banks increased from

11% to 13%. Fee revenue generated by global investment banking totalled

US$66.3 billion in 2009, up 12% on the previous year.

The United States has the most banks in the world in terms of institutions (7,085

at the end of 2008) and possibly branches (82,000). This is an indicator of the

geography and regulatory structure of the USA, resulting in a large number of

small to medium-sized institutions in its banking system. As of Nov 2009,

China's top 4 banks have in excess of 67,000 branches with an additional 140

smaller banks with an undetermined number of branches.

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CHAPTER NO. 2:

INDIAN PROSPECTIVE OF BANKING

INDUSTRY

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2.1) INTRODUCTION:-

Banking in India in the modern sense originated in the last decades of the 18th

century. Among the first banks were the Bank of Hindustan, which was

established in 1770 and liquidated in 1829-32; and the General Bank of India,

established 1786 but failed in 1791.

The largest bank, and the oldest still in existence, is the State Bank of India. It

originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as

the Bank of Bengal. This was one of the three banks funded by a presidency

government; the other two were the Bank of Bombay and the Bank of Madras.

The three banks were merged in 1921 to form the Imperial Bank of India, which

upon India's independence, became the State Bank of India in 1955. For many

years the presidency banks had acted as quasi-central banks, as did their

successors, until the Reserve Bank of India was established in 1935, under

the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated

banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are

now called its associate banks. In 1969 the Indian government nationalised 14

major private banks. In 1980, 6 more private banks were nationalized. These

nationalized banks are the majority of lenders in the Indian economy. They

dominate the banking sector because of their large size and widespread

networks.

The Indian banking sector is broadly classified into scheduled banks and non-

scheduled banks. The scheduled banks are those which are included under the

2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are

further classified into: nationalised banks; State Bank of India and its

associates; Regional Rural Banks (RRBs); foreign banks; and other Indian

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private sector banks. The term commercial banks refer to both scheduled and

non-scheduled commercial banks which are regulated under the Banking

Regulation Act, 1949.

Generally banking in India was fairly mature in terms of supply, product range

and reach-even though reach in rural India and to the poor still remains a

challenge. The government has developed initiatives to address this through the

State Bank of India expanding its branch network and through the National

Bank for Agriculture and Rural Development with things like microfinance.

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2.2) HISTORY:-

a) Ancient India:-

The Vedas (2000-1400 BCE) are earliest Indian texts to mention the concept

of usury. The word kusidin is translated as usurer. The Sutras (700-100 BCE)

and the Jatakas (600-400 BCE) also mention. Also, during this period, texts

began to condemn usury. Vasishtha forbade Brahmin and Kshatriya varnas from

participating in usury. By 2nd century CE, usury seems to have become more

acceptable. The Manusmriti considers usury an acceptable means of acquiring

wealth or leading a livelihood. It also considers money lending above a certain

rate, different ceiling rates for different caste, and a grave sin.

The Jatakas also mention the existence of loan deeds. These were

called rnapatra or rnapanna. The Dharmashastras also supported the use of loan

deeds. Kautilya has also mentioned the usage of loan deeds. Loans deeds were

also called rnalekhaya.

Later during the Mauryan period (321-185 BCE), an instrument

called adesha was in use, which was an order on a banker directing him to pay

the sum on the note to a third person, which corresponds to the definition of a

modern bill of exchange.

b) Colonial era

During the period of British rule merchants established the Union Bank

of Calcutta in 1869, first as a private joint stock association, then partnership. Its

proprietors were the owners of the earlier Commercial Bank and the Calcutta

Bank, who by mutual consent created Union Bank to replace these two banks.

In 1840 it established an agency at Singapore, and closed the one at Mirzapore

that it had opened in the previous year. Also in 1840 the Bank revealed that it

had been the subject of a fraud by the bank's accountant. Union Bank was

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incorporated in 1845 but failed in 1848, having been insolvent for some time

and having used new money from depositors to pay its dividends.

The Allahabad Bank, established in 1865 and still functioning today, is the

oldest Joint Stock bank in India; it was not the first though. That honour belongs

to the Bank of Upper India, which was established in 1863, and which survived

until 1913, when it failed, with some of its assets and liabilities being

transferred to the Alliance Bank of Simla.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s.

Calcutta was the most active trading port in India, mainly due to the trade of

the British Empire, and so became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank,

established in 1881 in Faizabad. It failed in 1958. The next was the Punjab

National Bank, established in Lahore in 1894, which has survived to the present

and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a

relative period of stability. Around five decades had elapsed since the Indian

rebellion, and the social, industrial and other infrastructure had improved.

Indians had established small banks, most of which served particular ethnic and

religious communities.

The presidency banks dominated banking in India but there were also some

exchange banks and a number of Indian joint stock banks. All these banks

operated in different segments of the economy. The exchange banks, mostly

owned by Europeans, concentrated on financing foreign trade. Indian joint stock

banks were generally undercapitalized and lacked the experience and maturity

to compete with the presidency and exchange banks. This segmentation let Lord

Curzon to observe, "In respect of banking it seems we are behind the times. We

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are like some old fashioned sailing ship, divided by solid wooden bulkheads

into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by

the Swadeshi movement. The Swadeshi movement inspired local businessmen

and political figures to found banks of and for the Indian community. A number

of banks established then have survived to the present such as Bank of

India, Corporation Bank, Indian Bank, Bank of Baroda, Canara

Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks

in Dakshina Kannada and Udupi district which were unified earlier and known

by the name South Canara ( South Kanara ) district. Four nationalised banks

started in this district and also a leading private sector bank. Hence undivided

Dakshina Kannada district is known as "Cradle of Indian Banking".

During the First World War (1914–1918) through the end of the Second World

War (1939–1945), and two years thereafter until the independence of India were

challenging for Indian banking. The years of the First World War were

turbulent, and it took its toll with banks simply collapsing despite the Indian

economy gaining indirect boost due to war-related economic activities. At least

94 banks in India failed between 1913 and 1918

c) Post-Independence:-

The partition of India in 1947 adversely impacted the economies

of Punjab and West Bengal, paralysing banking activities for months.

India's independence marked the end of a regime of the Laissez-faire for the

Indian banking. The Government of India initiated measures to play an active

role in the economic life of the nation, and the Industrial Policy Resolution

adopted by the government in 1948 envisaged a mixed economy. This resulted

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into greater involvement of the state in different segments of the economy

including banking and finance.

The major steps to regulate banking included:

The Reserve Bank of India, India's central banking authority, was

established in April 1935, but was nationalised on 1 January 1949 under the

terms of the Reserve Bank of India (Transfer to Public Ownership) Act,

1948 (RBI, 2005b).

In 1949, the Banking Regulation Act was enacted which empowered

the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks

in India".

The Banking Regulation Act also provided that no new bank or branch of an

existing bank could be opened without a license from the RBI, and no two

banks could have common directors.

d) Current Period

All banks which are included in the Second Schedule to the Reserve Bank of

India Act, 1934 are Scheduled Banks. These banks comprise Scheduled

Commercial Banks and Scheduled Co-operative Banks. Scheduled Commercial

Banks in India are categorized into five different groups according to their

ownership and/or nature of operation. These bank groups are:

State Bank of India and its Associates

Nationalised Banks

Private Sector Banks

Foreign Banks

Regional Rural Banks.

Cooperative Banks

Scheduled Bank

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In the bank group-wise classification, IDBI Bank Ltd. is included in

Nationalised Banks. Scheduled Co-operative Banks consist of Scheduled State

Co-operative Banks and Scheduled Urban Cooperative Banks

By 2010, banking in India was generally fairly mature in terms of supply,

product range and reach-even though reach in rural India still remains a

challenge for the private sector and foreign banks. In terms of quality of assets

and capital adequacy, Indian banks are considered to have clean, strong and

transparent balance sheets relative to other banks in comparable economies in

its region. The Reserve Bank of India is an autonomous body, with minimal

pressure from the government.

With the growth in the Indian economy expected to be strong for quite some

time-especially in its services sector-the demand for banking services,

especially retail banking, mortgages and investment services are expected to be

strong. One may also expect M&A, takeovers, and asset sales.

On 28 Aug, 2014, Pradhan Mantri Jan Dhan Yojana is a scheme for

comprehensive financial inclusion launched by the Prime Minister of

India, Narendra Modi. Run by Department of Financial Services, Ministry of

Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were

opened under this scheme. By 15 July 2015, 16.92 crore accounts were opened,

with around ₹20288.37 crore (US$3.1 billion) were deposited under the

scheme, which also has an option for opening new bank accounts with zero

balance.

2.3) ADOPTION OF BANKING TECHNOLOGY:-

The IT revolution has had a great impact on the Indian banking system. The use

of computers has led to the introduction of online banking in India. The use of

computers in the banking sector in India has increased many folds after the

economic liberalisation of 1991 as the country's banking sector has been

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exposed to the world's market. Indian banks were finding it difficult to compete

with the international banks in terms of customer service, without the use of

information technology.

The RBI set up a number of committees to define and co-ordinate banking

technology. These have included:

In 1984 was formed the Committee on Mechanisation in the Banking

Industry (1984) whose chairman was Dr. C Rangarajan, Deputy Governor,

Reserve Bank of India.

In 1988, the RBI set up the Committee on Computerisation in Banks

(1988) headed by Dr. C Rangarajan. It also suggested modalities for

implementing on-line banking. The committee submitted its reports in 1989

and computerisation began from 1993 with the settlement between IBA and

bank employees' associations.

In 1994, the Committee on Technology Issues relating to Payment

systems, Cheque Clearing and Securities Settlement in the Banking Industry

(1994) was set up under Chairman W S Saraf. It also said that MICR

clearing should be set up in all branches of all those banks with more than

100 branches.

In 1995, the Committee for proposing Legislation on Electronic Funds

Transfer and other Electronic Payments (1995) again emphasized EFT

system.

Automated teller machine growth

The total number of automated teller machines (ATMs) installed in India by

various banks as of end June 2012 was 99,218. The new private sector banks in

India have the most ATMs, followed by off-site ATMs belonging to SBI and its

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subsidiaries and then by nationalised banks and foreign banks, while on-site is

highest for the nationalised banks of India.

Cheque truncation initiative

In 2008 the Reserve Bank of India introduced a system to allow cheque

truncation in India, the cheque truncation system as it was known was first

rolled out in the National Capital Region and then rolled out nationally.

Expansion of banking infrastructure

Physical as well as virtual expansion of banking through mobile banking,

internet banking, and tele banking, bio-metric and mobile ATMs is taking

place since last decade and has gained momentum in last few years.

2.4) NATIONALIZATION IN THE 1960S

Despite the provisions, control and regulations of the Reserve Bank of India,

banks in India except the State Bank of India (SBI), continued to be owned and

operated by private persons. By the 1960s, the Indian banking industry had

become an important tool to facilitate the development of the Indian economy.

At the same time, it had emerged as a large employer, and a debate had ensued

about the nationalization of the banking industry. Indira Gandhi, the then Prime

Minister of India, expressed the intention of the Government of India in the

annual conference of the All India Congress Meeting in a paper entitled "Stray

thoughts on Bank Nationalization." The meeting received the paper with

enthusiasm.

A second dose of nationalisation of 6 more commercial banks followed in 1980.

The stated reason for the nationalisation was to give the government more

control of credit delivery. With the second dose of nationalisation, the

Government of India controlled around 91% of the banking business of India.

Later on, in the year 1993, the government merged New Bank of

India with Punjab National Bank. It was the only merger between nationalised

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banks and resulted in the reduction of the number of nationalised banks from 20

to 19. After this, until the 1990s, the nationalised banks grew at a pace of

around 4%, closer to the average growth rate of the Indian economy.

2.5) LIBERALIZATION IN THE 1990S

In the early 1990s, the then government embarked on a policy of liberalization,

licensing a small number of private banks. These came to be known as New

Generation tech-savvy banks, and included Global Trust Bank (the first of such

new generation banks to be set up), which later amalgamated with Oriental

Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI

Bank and HDFC Bank. This move, along with the rapid growth in the economy

of India, revitalised the banking sector in India, which has seen rapid growth

with strong contribution from all the three sectors of banks, namely,

government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed

relaxation in the norms for foreign direct investment, where all foreign investors

in banks may be given voting rights which could exceed the present cap of 10%

at present. It has gone up to 74% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this

time, were used to the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4)

of functioning.

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CHAPTER NO. 3:

EDUCATION LOAN

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3.1) Introduction:-

Education loans can augment the boundaries of what you can achieve.

Education never ends- it is not said without reason, we are educated all our lives

and getting an education not only is a great achievement but something that

gives you the tools to find your own way in the world. Education is an

important and necessary step, since this communicates knowledge and skills, so

each and every one can think for a stable and secure future. Here is no doubt

that education is the backbone of a civilized society, but now a days, education

has become more commercial and in an effort to ensure that best possible, for

the continuation of the training is an expensive affair. But there come some

questions about ―what about those who want to have a university degree, but do

not have the finances to spend for the degree?‖ to assist pupils and parents like

this, lenders have the education and want to fulfil their dream or desire. These

education loans take care of all spending on education, on behalf of students and

too easily facilitate to the upcoming conditions. While working towards your

degree, you are constantly plagued about paying for the education fees, books,

and other living expenses. Education loan can provide funding for tuition fees,

board and rooms, books, computers and even student travel.

The education loans are easy to reach and are far in the credit market. Along

with growing awareness about the importance of education to succeed in the

knowledge economy, the cost of quality education too is growing fast.

Education loan are open to all people in its myriad form. Education loan can

realize your education plans of your children. Though most banks provide

education loan, it is the public sector banks that are in forefront in providing

education loans. There are many types of education loans. Discerning about

types of education loans will help you in making the accurate decision.

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In recent years, a large number of students, especially those pursuing

professional courses in India or abroad, are availing of education loans.

The boom in the banking sector has led to release of large amount of funds for

education loan. Now, education loan is easily available from various banks in

India and this change is encouraging more and more students to take up higher

education despite their financial shortcomings. The repayment options with

education loans will similarly accommodate your personal financial

preferences. You can either repay interest amount while still in school or after

graduation. The various sites on education loans can give you innumerable

repayment options and monetary remunerations.

For those students wishing to invest in an education that will led to a fulfilling

life and a rewarding career, educational loan can be a crucial decision. Student

loans, distance education loans, and even private education loans can help make

schooling affordable. In turn, affordable schooling can help students achieve

their very best and can lead to real success in late life.

DEFINITION OF ‘EDUCATION LOAN’:

Money borrowed to finance education or school related expenses.

Payments are often deferred while in school and for a six month grace

period after graduation.

Education loans can be termed as a type of a monetary assistance such as

funding, rewards, financing and scholarships, which when borrowed in

cash, have to be returned with some added interest.

An education loan is a loan taken to help pay for an education, usually at

a college or trade school, but may also be used to pay for private schools

or pre schools as well.

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An advance of funds to a sudden for the purpose of financing a college or

vocational education.

3.2) OBJECTIVES:

The Educational Loan Scheme outlined below aims at providing financial

support from the banking system to deserving/ meritorious students for pursuing

higher education in India and abroad. The main emphasis is that every

meritorious student though poor is provided with an opportunity to pursue

education with the financial support from the banking system with affordable

terms and conditions. No deserving student is denied an opportunity to pursue

higher education for want of financial support.

In short, the scheme aims at providing financial assistance on reasonable terms:

To the poor and needy to undertake basic education.

To the meritorious students to pursue higher/ professional/

technical education.

3.3) NEED AND SIGNIFICANCE OF EDUCATION

LOAN:

Education loans are justified on grounds of efficiency and equity. Education

becomes more purposeful when the student has to complete his/her studies to

acquire the capacity to repay the loan. Employability of the student after

completing the course becomes important and therefore educational standards

will have to go up. No one who has the academic ability and desire to pursue

higher studies will be excluded for lack of ability to meet the cost of educations

since the loan mechanism can also be used to offer incentive to students to

select certain type of studies. Because of the developments in the sphere of

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education, private cost of education has gone up and as and when the fee

structure has revised, it will further go up. In a situation like this, many

aspirants for higher education will have denied access to higher education

unless educational loans come to their rescue. Apart from students, even

educational institutions whose finances are affected by reduced UGC and

Government grants need loan finance for infrastructure development and for

building assets from which regular returns can be obtained for financing their

activities in future.

3.4) ADVANTAGES & DISADVANTAGES OF

EDUCATION LOANS:

A. The following are the important benefits of education loan.

a) Financial support for professional courses such as MBA, B.Tech and

MBBS

b) Available for higher education in India and abroad

c) Easy repayment only after job placement

d) Affordable Interest Rates Lesser burden on parents

e) Loan covers up to as much as 20 lack available by various banks

f) Expenses such as tuition fees, travel expenses, hostel charges are

included in education loan.

g) It helps in reduction of the tax payment. The borrower can claim the

interest from the tax. The deduction only includes the interest rate and not

the principal amount

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B. The following are the disadvantages of education loan:

a) Most of the banks do not clear all the things at the time of giving loan and

makes many additional charges when you are repaying it. Some o the

undefined charges like processing charges, extra charges for delayed

payment, increase in overall cost of loan etc.

b) Most of the banks do not provide proper assistance to borrowers. They do

not understand at what circumstances a borrower would be going. If a

single payment is missed the loan will go into default.

c) A borrower should choose long term for repaying the loan. Although for

it he will have to pay more interest. Because in some cases if a candidate

is not able to repay the loan on the scheduled date due to some problem

he has to suffer from many disappointing pressure from the bank.

3.5) TYPES OF EDUCATION LOAN:-

i. Student Loan:-

The student loan is usually the best choice education loan for a student

whose parents cannot pay for his or her education. While the student

remains in school interest on this type of education loan accrues and is

paid for by the government. When the student stops attending school, the

education loan is usually paid off in payments. These payments can be

quite large of the loan is large, so students should borrow only what they

need.

A student loan is designed to help students pay for college tuition, books,

and living expenses. It differs from other types of loans in that the interest

26

rate is substantially lower and the repayment schedule is deferred while

the student is still in school.

ii. Federal Perkins loans:-

A federal Perkins loan is a loan that you can use for college education,

either graduate undergraduate. It is a low interest rate low, usually having

an interest rate of around 5%. Perkins loans are available to students who

are considered as having ―exceptional‖ financial needs when it comes to

finding their education.

iii. Distance Education Loan:-

Distance education is more popular than ever today. It allows students to

study remotely, without having to attend classes at university. This allows

students from all walks of life to pursue a college education without

disrupting their family or work life. While there is no doubt that distance

education makes education more accessible to many, students often find

that they require distance education loan in order to pay for their remote

education.

iv. Parent loan:-

These loans can apply by the parent for further higher and professional

education of their children. However, after getting their credit report will

apply for the loan, because which loans are provided by private lenders

such as banks and financial Institutions. But the rate of Interest is high,

and it can be reimbursed with in the period of 10 years.

v. Special Education Grants:-

Special Education generally refers to students who are differently-able.

However, if it can also refer to students who require special education

needs in other ways. For example, students with emotional difficulty that

make a difficulty study may qualify for certain types of special education

27

grants and loans. Students who are notable to attend regular classes for a

specific reason may also apply for special education loans.

3.6) BASICS OF EDUCATION LOAN:

A. Expenses considered for loan:

a) Fee payable to college/ school/ hostel.

b) Examination/ Library/ Laboratory fee.

c) Purchase of books/ equipments/ instruments/ uniforms.

d) Caution deposit/ building fund/ refundable deposit supported by

Institution bills/ receipts.

e) Travel expenses/ passage money for studies abroad.

f) Purchase of computers - essential for completion of the course.

g) Any other expense required to complete the course - like study tours,

project work, thesis, etc.

B. Documents required

1. A completed and signed application form

2. Two passport size photographs applicant

3. Photo id of the applicant. The applicant can submit one of the following:

a) Passport

b) Pan card

c) Voters ID card

d) Driving license

e) Employee ID (if working)

f) Defence ID card

g) Aadhaar Card

28

h) Photo ID issued by central or state government

i) Bank passbook with photograph of the account attested by the bank

4. Residence poof of the applicant:

a) Passport with address

b) Driving license with address

c) Bank statement with address

d) Ration card (except Maharashtra)

e) Aadhaar card

f) Telephone/ electricity/ water bill not older than three months

g) Voters ID card

5. Admission documents:

a) Printed admission offer letter from the university/institute. The letter

must be on their letter head and must be signed by the authority.

b) I-20 form for students going to the US for higher studies

c) Fee details of the institute/ university

6. Academic documents

a) Mark sheets and certificates of Class 10 and Class 12

b) Mark sheets and certificates of graduation (if the candidate is going

for post graduate studies)

c) Documents of scholarships (if the candidate obtained one)

d) Documents of any entrance exam take- GRE, GMAT, IELTS, TOEFL

29

7. Income proof of the applicant:

I. In case of a salaried employee:

a) Salary certificate on employer‘s letterhead or latest three month‘s

salary slip

b) Last two years‘ Form 16 from the employer

c) Last two years‘ Income Tax Returns

d) Any other valid income proof

II. In case of self employed person:

a) Last two years‘ Income Tax Returns

b) Last two years‘ Certified Financial Statements or

c) Provisional Financial Statements Duly Certified by CA

d) Proof of office

e) Any other valid income proof

8. Income proof of the guarantor if the applicant is not employed. The same

documents mentioned above is required for guarantor also

9. Declaration/ affidavit confirming that the candidate has not obtained any

other loan from other bank.

30

C. How to apply for education loan:

Step 1: Fill in the application form

The candidates can either collect the application form from the banks or apply

online by visiting the bank‘s official webpage. The candidate must have in hand

his/her admission offer letter from the University along with the details of the

study expenditure. The candidate must also provide the required documents for

education loan such as:

a) Passport size photograph

b) l Resident proof of the applicant

c) Photo identity proof

d) Academic documents

e) Income proof of the guarantor

Disbursment of education loan

Sanction/rejection of education loan

Verification of the details and documents

Fill in the application form

31

Step 2: Verification of the details and documents

Once the candidate submits the application form along with the supporting

documents for student loan, the bank will verify the details. The process of

verification differs from bank to bank. Some banks prefer a personal

conversation with the candidate where they enquire about the academic

qualification and excellence. In case the bank requires more details, it will

inform the candidate.

Step 3: Sanction/ rejection of education loan

If the bank is satisfied with the documents provided by the candidate, it

sanctions the educational loan. Once the loan is sanctioned, the bank will issue a

Loan Offer Letter mentioning the amount to be given to the candidate. The

candidate can use this letter for admission process to state the source of income

to support his/her studies. The bank also sends an Education Loan Agreement to

the student, which states the terms and conditions of the student loan, interest

rate and repayment strategies. Once the loan is granted, the student needs to

sign a promissory note.

Step 4: Disbursement of education loan

Once all the formalities are completed, the bank will disburse the education

loan. The education loan amount is given to the candidate through:

a) Demand Draft

b) Cheque

Electronic transfer to the University

32

3.7) QUANTUM OF FINANCE

Need based finance subject to repaying capacity of the parents/ students with

margin and the following ceilings.

Studies in India - Maximum Rs.7.50 lacs.

Studies abroad - Maximum Rs.15 lacs

How much education loan should you take?

This question may haunt you if you don‘t do cost benefit analysis. The

maximum loan that lenders disburse for studies in India is Rs. 10 lakhs and for

overseas, Rs. 20 lakhs. Credila (HDFC) provides loan above Rs 20 lakhs. The

education loan you should take would depend on the course fees and your

capacity of generating down payment (payment from own pocket) towards it.

For a loan above Rs. 4 lakhs, one has to generate minimum down-payment of

5% for studies in India and 15% for studies abroad. For a loan below Rs. 4

lakhs, one can get the entire fees as loan, as the banks claim. But you can pay

the down payment or the margin money piecemeal. Allahabad Bank, for

instance, takes the margin money on year-to-year basis and disbursements are

made on a pro-rata basis. Though a student may be eligible for uppermost loan

limit he should exercise prudence while filling the loan amount. If the course for

which the loan is being taken enables better earnings then it may more than

justify the loan

33

3.8) MARGIN:

Up to Rs.2 lacs : Nil

Above Rs. 2 lacs : Studies in

India

: 15%

Studies Abroad : 25%

Scholarship/ assistantship to be included in margin.

Margin may be brought-in on year-to-year basis as and when

disbursements are made on a pro-rata basis.

3.9) ELIGIBILITY CRITERIA:

I. Courses eligible

A. Studies in India:

a) School education including 2 plus stages.

b) Graduation courses: BA, B.Com. B.Sc., etc.

c) Post Graduation courses: Masters and PhDs

d) Professional courses : Engineering, Medical, Agriculture, Veterinary,

Law, Dental,

e) Management, Computer etc.

f) Computer certificate courses of reputed institutes accredited to Dept. of

Electronics or institutes affiliated to university.

g) Courses like ICWA, CA, CFA etc

h) Courses conducted by IIM, IIT, IISc, XLRI. NIFT, etc.

i) Courses offered in India by reputed foreign universities.

j) Evening courses of approved institutes.

34

k) Other courses leading to diploma/ degree etc. conducted by colleges/

universities approved by UGC/ Govt. / AICTE/ AIBMS/ ICMR etc.

l) Courses offered by National Institutes and other reputed private

institutions. Banks may have the system of appraising other institution

courses depending on future prospects/ recognition by user institutions.

B. Studies Abroad:

a) Graduation: For job oriented professional/ technical courses offered by

reputed universities.

b) Post graduation: MCA, MBA, MS, etc.

c) Courses conducted by CIMA- London, CPA in USA etc.

II. Student eligibility:

a) Should be an Indian National

b) Secured admission to professional/ technical courses through Entrance

Test/ Selection process.

c) Secured admission to foreign university/ Institutions.

d) Should have scored minimum 60% (50% for SC/STs) in the qualifying

examination for admission to graduation courses.

e) Age limit for education loan varies from bank to bank. Generally it is

from 16 to 35

f) Students should have a good academic record

g) Students should not have year lap during their education

35

3.10) INTEREST RATE ON EDUCATION LOAN:-

The mathematical formula for calculating EMIs is:

EMI=[P*R*(1+R)^N]/[(1+R)^N-1], where P stands for the loan

amount or principal, R is the interest rate per month(if the interest rate per

annum is 11% , then the rate of interest will be 11/(12*100)], and N is the

number of monthly instalments.

RATE OF INTEREST:

Up to Rs.2 lacs : PLR

Above Rs.2 lacs : PLR + 1%

The interest to be debited quarterly/ half yearly on simple basis

during the Repayment holiday/ Moratorium period.

Penal interest @ 2% is charged for above Rs.2 lacs for the overdue

amount and overdue period.

0.50% concession in interest rate for girl students availing

Education Loans

Loan

Amount

Morato

rium

Period

Loan

Repayme

nt Period

Interest

Rate

Loan

amount

after

moratori

um

period

EMI Gros

s

Salar

y

Net

Salary

50% of

the Net

salary

for

servici

ng debt

Amount

left in

hand

after

paying

EMI

50000 3 7 11% 657,500 11,0

85.8

9

25,0

00

22,00

0

11,085.

89

10914.1

1

36

The interest rates charged on the educational loan shall be as per

the BPLR/Base Rate of the individual banks and as per the

provisions for interest rates under the IBA Model Educational Loan

Scheme.

The interest rates charged on the educational loan shall be as per

the BPLR/Base Rate of the individual banks and as per the

provisions for interest rates under the IBA Model Educational Loan

Scheme.

The interest rates charged on the educational loan shall be as per the

BPLR/Base Rate of the individual banks and as per the provisions for interest

rates under the IBA Model Educational Loan Scheme.

Interest rate of education loan depends on whether you are studying in India or

abroad, the course that you are applying for, your loan amount and the tenure.

Students getting admission to highly rated institutions are offered loans with a

lower rate of interest. There have been talks that IBA will soon come up with

comprehensive ratings of the institutes to guide banks in making right decisions

while granting educational loans. From a student‘s perspective, the irony of it is

that they will have to shell out more for Equated Monthly instalments (EMI)

due to high interest rates in case institutes have been rated on the downside. On

the other hand it‘s likely they would be placed at lower packages from such

institutes! Special concessions on interest rates of 0.5 percent are available for

women students.

a) Two types of interest rates:

These comprise fixed interest and floating interest rate. Usually, nationalised

banks offer variable interest rates for student loans, while private and foreign

banks offer fixed interest rates. Interest rates vary between 12 to 16 percent.

37

Considering the present macro-economic environment it is advisable to go for

floating interest rate loans. SBI is the leading player with 25 percent share in

education loan segment.

b) Simple vs. compound interest:

Simple interest is to be charged during the study period and up to

commencement of repayment. There have been complaints that banks charge

compound interest. Servicing of interest during the moratorium period is

optional and students can avail one percent rebate on interest rate if they decide

to pay.

3.11) COLLATERAL SECURITY:

a) Up to Rs. 4 lacs:

Co-obligation of parents and No security

b) Above Rs. 4 lacs and upto Rs.7.50 lacs:

The Co-obligation of parents together with collateral security in the

form of suitable third party guarantee. The bank may, at its discretion, in

exceptional cases, waive third party guarantee if satisfied with the net-

worth/means of parent‘s who would be executing the documents as ―joint

borrower‖.

c) Above Rs.7.50 lacs

Co-obligation of parents together with tangible collateral security

of suitable value, like fixed deposits, LIC, NSC along with the

assignment of future income of the student for payment of instalments.

The documents should be executed by both the student and the

parent/guardian as joint-borrower. We clarify that if the student is a

minor, the documents will be signed by the guardian acting `for self‘ as

well as `for and on behalf of the minor‘. The co-obligator should be

38

parent(s)/guardian of the student borrower. In case of married person, co

obligator can be spouse or the parent(s)/parents-in-law.

Processing fees

No processing fees/ upfront charges

Deposit of Rs. 5000/- for education loan for studies abroad which will be

adjusted in the margin money.

3.12) CAPABILITY CERTIFICATE

Since some of the foreign universities require the students to submit a

certificate from their bankers about the sponsors solvency/financial

capability, with a view to ensure that sponsors of students going abroad

for higher studies are capable for meeting the expenses till completion of

studies, capability certificate may be issued in such cases. For this

financial and other supporting documents may be obtained from the

applicant.

3.13) DISBURSEMENT

Education loan is to be disbursed n the form of term loan. A limit upto

which advance is to be allowed during each year will be set up. Each time

the borrowing scholar is in need of funds to pursue his studies; he will

approach the lending office and explain his needs to the Incumbents In

charge and will permit drawing on the borrowers account within the limit

fixed. This will also enable the Incumbent In charge to remain in close

touch with the borrowing students activities.

The loan to be disbursed in stages as per the requirement/demand

directly to the Institutions/ Vendors of books/ equipments /instruments to

the extent possible.

39

Loan to be sanctioned by the branch nearest to the place of the domicile

of the student.

In case of, purchase of stationery and books, loan may be disbursed in

cash on declaration by the applicant and production of bills.

3.14) POST SANCTION SUPERVISION

The bank will reserve the right of giving loan under the scheme to any

scholar or continue/discontinue the yearly disbursement a borrower under the

scheme, depending upon whether or not he/she shows good results at the

institution he/she has joined for studies and whether or not reports about his/her

conduct are satisfactory.

Such reports will be required to be produced to the Incumbent Incharge of the

lending office before the start of each academic year subsequent to the first

year. Loan passbook be issued to the borrower containing details such as date of

sanction of loan, amount of loan sanctioned, subsidy received (if any) rate of

interest, amount due under each instalment, due date of instalment, etc.

3.15) REPAYMENT OF EDUCATION LOAN

a) Repayment period:

Repayment commences two years after completion of the course or six months

after getting employment, whichever is earlier. Loan with interest is repayable

in equated monthly instalments within:

For loans Up to Rs.7.5 lacs – 10 years after commencement of

repayment

For loans above Rs.7.5 Lakhs - up to 15 years after

commencement of repayment No prepayment penalty

Credit Delivery

40

Loan can be availed from the branch nearest to the place of permanent

residence of the parent / guardian. Obtention of UID number (Aadhaar) of

the student is compulsory

Repayment of education loan is generally in the form of EMI. Student

should compare their EMI with likely salary. They can determine their

EMI amount for different combinations of interest rates and tenure.

According to experts, it‘s desirable that the EMI should not exceed 50

percent of one‘s likely salary. It may happen that students are not able to

repay loans if salary is less than expected. In such cases students may

request banks to reschedule their loans.

In some careers, it is observed that salary levels initially are low.

Telescoping of repayment with stepped up instalments with the passage

of time is considered in such cases by banks on request. No prepayment

charges are generally levied by public sector banks in case of early

settlement of loan. The new scheme has extended the loan tenure which is

likely to facilitate lower EMI repayment.

b) Repayment Strategy:

Repayment starts after a 'moratorium period' or 'repayment holiday', that

is, one year after the end of studies or six months after getting a job,

whichever is earlier. The borrower must have a repayment strategy in

place before EMIs start.

c) Make use of the moratorium period:

Repayment does not start immediately. The extra time can be used

to build a corpus. "The money can be either used for partial pre-payment

or EMIs," You can also repay some interest during the study period to

lower EMIs. The bank starts levying interest from the time of

disbursement at the end of each course year or semester. The amount

keeps adding up, increasing the debt burden.

41

However, if you pay simple interest on the principal during the study

period, your EMIs will be reduced to a large extent. A repayment

moratorium (also called a repayment holiday) is the course work period +

1 year or 6 months after the student gets a job or starts earning, whichever

is earlier. Many banks also give a 1 per cent interest concession to those

who repay the interest debited during the moratorium period.

3.16) TAX BENEFITS:-

If education loan is taken and are repaying the same, we can always claim

deduction under Section 80E of the Income Tax Act for the repayment of

interest on education loan. However, this deduction is only available to

individual or HUF.

Only an individual can claim deduction under Section 80E for the

repayment of interest on education loan provided that the loan was taken

for the Higher Education of Self or Spouse or Children or Student of

whom the individual is the legal guardian. The salient features of

claiming deduction under Section 80E are mentioned below:-

i. Amount and the Nature or deduction:-

The deduction allowed under Section 80E of Chapter V1-A is only for the

repayment of interest on education loan and not for the purpose of

repayment of principal amount of education loan. At the time of availing

he education loan, the Banks issue a statement stating how much amount

is to be paid per annum for principal repayment and how much is o be

paid for interest on education loan.

There would be no treatment of repayment of principal for the purpose of

Income Tax and only the amount repaid as interest on education loan is

allowed to be claimed as a deduction while filling the Income Tax Return

42

This deduction under Section 80E is over and above the Rs.150000

deduction allowed under Section 80C and there is no minimum limit for

claiming this deduction under Section 80E

ii. Purpose of Education Loan:-

This deduction under Section 80E is allowed only if the education loan

was taken for the purpose of Higher Education of Self or Spouse or

Children or the Student of whom the individual is the Legal Guardian.

This deduction is not only allowed for courses pursued in India but also

allowed for courses pursued outside India as well.

iii. Loan from Organisation allowed for claiming deduction:-

Deduction under Section 80E allowed only f the Education Loan is taken

from any Financial Institution or approved Charitable Institution.

Education loans taken from relatives or friends do not qualify for

deduction under this Section and only loans taken from any FI or

approved Charitable Institution is allowed to be claimed as deduction

under this section.

iv. Period of Deduction:-

This deduction under Section 80E is allowed to be claimed in the year in

which the individual starts paying the interest on education loan and is 7

succeeding years. Thus, this deduction is available for maximum period

of 8 years or until the interest is repaid by the individual in full

(whichever is earlier).

3.17) ELIGIBILITY FOR INTEREST SUBSIDY:

The interest subsidy under the Scheme shall be available to the eligible

students only once, either for the first undergraduate degree course or the

post graduate degrees diplomas in India. Interest Subsidy shall, however,

be admissible for integrated courses (graduate + post graduate). Interest

43

Subsidy under this Scheme shall not be available for those students once

they discontinue the course midstream, or who are expelled from the

Institutions on disciplinary or academic grounds. However, the interest

subsidy will be available only if the discontinuation was due to medical

grounds for which necessary documentation to the satisfaction of the

Head of educational institution will have to be given.

Not eligible for interest subsidy:

Students admitted through management quota

Students pursuing studies abroad

Students pursuing courses which are not approved under IBA Scheme but

approved by the Bank.

Students discontinuing the course in the mid-stream or who are expelled

from the institution on disciplinary or academic grounds. However

subsidy would be available for actual period of study only if

discontinuation is due to medical grounds with necessary documentation.

3.18) DEFAULT IN REPAYMENT

While taking an education loan is easy, paying back requires careful planning.

A default spoils the credit score of both the student and his parents (usually co-

borrower). If equated monthly instalments , or EMIs, are overdue for 90 days,

the bank classifies the loan as a non-performing asset. The borrowers will not

only come in the bad books of banks, if the loan amount is higher than Rs 7.5

lakhs, the collateral will be at risk as well.

I. Late payment timeline

As soon as you miss your first student loan payment, you‘re

considered delinquent. This status can act a bit like a red flag to both you and

the lender.

44

After a payment reaches 90 days past due the delinquent status will

be reported to the three major credit bureaus and a mark negative mark will

be added to your credit report.

After 270 days past due, a student loan is considered to be in default. At this

point, your debt will be put into collections and payment will be required

from collections agencies.

II. Repercussions for defaulting on your student loan

a) Loss of eligibility for forgiveness plan:-

If you have federal student loans in default, you‘ll lose protections such

as federal forgiveness programs, forbearance, deferment, and access to

different repayment plan options

b) Lowered interest score (and resulting consequences):-

The default will be noted in your credit report and will continue to be

visible to lenders even if the default is quickly resolved. Keep in mind

this hit on credit can impact your eligibility for loans, increase your

mortgage rates, and even impact your future employment opportunities.

b) Collections fees:-

Once your student loans are turned over to collections, you‘ll be

responsible for any associated collections fees. These will be tacked on to

your initial balance of principal and interest.

c) Tax Refund Offset:-

Should you fail to pay on your defaulted loans, you may have your tax

refund applied to your student loan payment. This is an automatic process

and one that can be particularly difficult should you rely on your refund

45

d) Pay check/wages garnished:-

The government may begin to collect payment by automatically

deducting up to 15% of your pay check. This will be used to pay debt

collections fees, interest, and then principal of your debt.

e) Legal actions:-

If you continue to ignore your defaulted loan you may face even more

serious legal repercussions. The government can sue you at any time after

your student loan has reached default status.

f) Higher interest rates:-

Along with a lowered credit score you‘ll also face the higher interest rates

that often accompany a lower score. Since the mark of default can live for

years on your credit report it‘s a consequence that could potentially

follow you for year.

3.19) EDUCATION LOAN CHECKLIST

An illustrative check list enabling a ready reference, so that intending

borrowers can furnish all related documents/papers in one lot, is given

below:

Loan application on banks format

Passport size photograph

Proof of address

Proof of having secured pass marks in last qualifying examination

Letter of admission in professional, technical or vocational courses.

Prospectus of the course wherein charges like admission fees,

examination fees, hostel charges etc are mentioned.

46

Details of assets and liabilities of person in case the loan amount is above

Rs. 4 lakhs:

Particulars of guarantors and details of their Assets and Liabilities.

If immovable property offered as collateral security- copy of Title

Deed, Valuation Certificate and Non-encumbrance Certificate

approved from layer of the bank.

Photocopy of Passport & Visa, in case of study abroad.

Any other document/ information depending upon the case and purpose

of the loan.

3.20) OTHER THINGS ABOUT EDUCATION LOAN:-

a) Academic progress:-

Monitoring academic progress of student is necessary for banks to ensure

asset quality of loans though subsequent instalments can‘t be stopped for

the mere reason that the student has failed in one or two subjects provided

he has been allowed to keep terms. Some foreign universities require

students to submit a certificate from their bankers about the sponsors‘

solvency/ financial capability. Students can approach banks to issue such

a ‗capability certificate‘. But one needs to be careful so as to maintain a

certain level of academic progress throughout the course of study.

b) Know your Waiver Period:

If you have taken an education loan it is important to know the loan

waiver period. Banks do not expect you to start repayment of the loan

immediately and are ready to wait for a certain period till you find a find

a job. The period from the time of completion of the course till the time

47

the banks start expecting repayment of the loan is known as moratorium

or waiver period.

The waiver period varies from bank to bank and you are better off

checking with your bank about the waiver period before planning your

education loan repayment. While a bank offering waiver period is a good

idea, remember, banks are expected to earn of each loan they offer and

they start charging the interest on education loans immediately and not

wait till the wavier period ends.

c) Multiple Loans:-

In case of receipt of application for more than one loan for student

borrower from a family, the ‗family‘ as a unit has to be taken into account

for considering the loan and security taken in relaxation to the total

quantum of finance disbursed, subject to margin and repaying capacity of

the parent/student.

d) Pay as you earn:-

It will be nice if your bank gives you the option of income-linked

repayment. Some education loan programmes in the US offer an income

sensitive repayment model where EMIs increase (or decrease) with

income. At present, the Indian Banking Association's model education

scheme has no provision for this. Banks also do not offer this option,

mainly due to lack of data and technology.

e) Take care of rate fluctuations:-

The interest rate is typically the base rate plus a fixed spread; say 1-2 per

cent that varies from bank to bank. So, it is a floating rate loan.

If you are earning enough and are able to save some money after paying

the current EMI and other expenses, use the spare money to create a

buffer in case of any increase in interest rate. "A sufficient surplus

48

should be maintained (at least three instalments) so that EMI servicing

Continues unhampered even in the event of a spike in expenses‖

f) What if you don‘t get a job?

Banks extend loans based on the capacity to repay. This is usually based

on the employment potential of the student after completion of the course.

However, what if the market is down the borrower fails to get good

income or a job?

Some banks allow loan deferment, but they are hard to convince. "For

exceptional and genuine cases where the student is not getting a job due

of macroeconomic conditions, lenders may consider extending the

repayment period," Usually education loans have tenures of five-seven

years. However, as per the guidelines, the tenure can be extended up to 10

years for loans upto Rs 7.5 lakhs and 15 years for loans above it.

An extension of the moratorium period is allowed in case the student

takes up higher studies immediately after completing the course.

"The commencement of repayment will be shifted to six months from

employment or one year of completion of the course, whichever is earlier,

without treating the change as restructuring. This will be irrespective of

whether the student has taken fresh or top-up loan for higher studies or

not. Banks also give an extension if the student is unable to complete the

course on time for reasons beyond his/her control. The maximum

extension in such situations is two years.

49

g) Top Up Loan:-

Second loan (Top Up) Loan within the overall limit is now permitted to

pursue a professional course in India or abroad provided the projected

income of the student, after placement, is sufficient to cover full loan

repayment, and subject to the second loan being allowed with the security

requirements as applicable to the aggregate loan limit. Since the student

will not be able to take up a job after completion of the first course, his

obligation to repay the loan after one year of completion of the first

course would also need to be deferred. In such cases, the moratorium

period may be extended for the duration of the second course and the

combined repayment shifted to one year after the completion of the

second course, or 6 months after taking up a job whichever is earlier.

h) Co-obligator:-

The co-obligator should be parent(s)/guardian of the student borrower. In

case of married person, co-obligator can be spouse or the

parent(s)/parents-in-law.

No Due Certificate: -

No due certificate need not be insisted upon as a pre condition for

considering educational loan. However, banks may obtain a

declaration/ an affidavit confirming that no loans are availed from

any other banks.

Disposal Application:-

Loan application have to be disposed of within a period of 15 days

to 1 month, but not exceeding the time norms stipulated for

disposing of loan applications under priority sector lending.

50

Flexibility in terms: -

In order to bring flexibility in terms like eligibility, margin,

security norms, and banks may consider relaxation in the norms on

a case-to-case basis delegating the powers to a fairly higher level

authority.

i) Minimum Age:-

There is no specific restriction with regard to the age of the student to be

eligible for education loan.

51

CHAPTER NO. 4:

CASE STUDY

52

4.1) INTRODUCTION TO BANK OF BARODA:-

Bank of Baroda is an Indian state-owned banking and financial

services company headquartered in Vadodara (earlier known as Baroda) in

Gujarat, India. It is the second-largest bank in India, after State Bank of India,

and offers a range of banking products and financial services to corporate and

retail customers through its branches and through its specialised subsidiaries

and affiliates. In addition to its headquarters in its home state of Gujarat, it has

a corporate headquarters in the Bandra Kurla Complex in Mumbai.

Based on 2014 data, it is ranked 801 on Forbes Global 2000 list. BoB has total

assets in excess of 3.58 trillion, a network of 5307 branches in India and

abroad, and over 8000 ATMs.

The bank was founded by the Maratha, Maharaja of Baroda, H. H. Sir Sayajirao

Gaekwad III on 20 July 1908 in the Princely State of Baroda, in Gujarat. The

bank, along with 13 other major commercial banks of India, was nationalised on

19 July 1969, by the Government and has been designated as a profit-making

public sector undertaking (PSU).

The founder, Maharaja Sayajirao Gaekwad, with his insight into the future, saw

―a bank of this nature will prove a beneficial agency for lending, transmission,

and deposit of money and will be a powerful factor in the development of art,

industries and commerce of the State and adjoining territories

4.2) HISTORY:-

1908–1959

In 1908, Maharaja Sayajirao Gaekwad III, one of the knights of the Maratha

Kingdom, set up the Bank of Baroda (BoB), with other stalwarts of industry

such as Sampatrao Gaekwad, Ralph Whitenack, Vithaldas Thakersey, Tulsidas

53

Kilachand and NM Chokshi. Two years later, BoB established its first branch

in Ahmadabad. The bank grew domestically until after World War II. Then in

1953 it crossed the Indian Ocean to serve the communities of Indians in

Kenya and Indians in Uganda by establishing a branch each in Mombasa and

Kampala. The next year it opened a second branch in Kenya, in Nairobi, and in

1956 it opened a branch in Tanzania at Dar-es-Salaam. Then in 1957 BoB took

a giant step abroad by establishing a branch in London. London was the center

of the British Commonwealth and the most important international banking

center. In 1958 BoB acquired Hind Bank (Calcutta; est. 1943), which became

BoB's first domestic acquisition.

1960’s

In 1961, BoB merged in New Citizen Bank of India. This merger helped it

increase its branch network in Maharashtra. BoB also opened a branch in Fiji.

The next year it opened a branch in Mauritius. Bank of Baroda In 1963, BoB

acquired Surat Banking Corporation in Surat, Gujarat. The next year BoB

acquired two banks: Umbergaon People‘s Bank in southern Gujarat and Tamil

Nadu Central Bank in Tamil Nadu state.

In 1969 the Indian government nationalised 14 top banks, including BoB. BoB

incorporated its operations in Uganda as a 51% subsidiary, with the government

owning the rest.

In 2002 BoB acquired Benares State Bank (BSB) at the Reserve Bank of India‘s

request. BSB was established in 1946 but traced its origins back to 1871 and its

function as the treasury office of the Benares state. In 1964, BSB had acquired

Bareilly Bank (est. 1934), with seven branches in western districts of Uttar

Pradesh; BSB also had taken over Lucknow Bank in 1968. The acquisition of

BSB brought BoB 105 new branches. Lucknow Bank, a unit bank with its only

office in Aminabad, had been established in 1913. Also in 2002, BoB

54

listed Bank of Baroda (Uganda) on the Uganda Securities Exchange (USE). The

next year BoB opened an OBU in Mumbai.

In 2004 BoB acquired the failed Gujarat Local Area Bank. BoB also returned to

Tanzania by establishing a subsidiary in Dar-es-Salaam. BoB also opened a

representative office each in Kuala Lumpur, Malaysia, and Guangdong, China.

2010’s

In 2010, Malaysia awarded a commercial banking licence to a locally

incorporated bank to be jointly owned by Bank of Baroda, Indian Overseas

Bank and Andhra Bank. That same year, BoB also opened a branch in New

Zealand.

In 2011, BoB opened an Electronic Banking Service Unit (EBSU) was opened

at Hamriya Free Zone, Sharjah (UAE). It also opened four new branches in

existing operations in Uganda, Kenya (2), and Guyana. BoB closed its

representative office in Malaysia in anticipation of the opening of its consortium

bank there. BoB received 'In Principle' approval for the upgrading of its

representative office in Australia to a branch.

The Malaysian consortium bank, India International Bank Malaysia (IIBM),

finally opened in Kuala Lumpur, which has a large population of Indians. BOB

owns 40%, Andhra Bank owns 25%, and IOB the remaining 35% of the share

capital. IIBM seeks to open five branches within its first year of operations in

Malaysia, and intends to grow to 15 branches within the next three years.

55

4.3) INTERNATIONAL PRESENCE:-

In its international expansion, the Bank of Baroda followed the Indian Diaspora,

especially that of Guajarati‘s. The Bank has 104 branches/offices in 24

countries including 61 branches/offices of the bank, 38 branches of its 8

subsidiaries and 1 representative office in Thailand. The Bank of Baroda has a

joint venture in Zambia with 16 branches.

Among the Bank of Baroda‘s overseas branches are ones in the world‘s major

financial centres (e.g., New York, London, Dubai, Hong Kong, Brussels and

Singapore), as well as a number in other countries. The bank is engaged in retail

banking via the branches of subsidiaries in Botswana, Guyana, Kenya,

Tanzania, and Uganda. The bank plans has recently upgraded its representative

office in Australia to a branch and set up a joint venture commercial bank in

Malaysia. It has a large presence in Mauritius with about nine branches spread

out in the country.

The Bank of Baroda has received permission or in-principle approval from host

country regulators to open new offices in Trinidad and Tobago and Ghana,

where it seeks to establish joint ventures or subsidiaries. The bank has

received Reserve Bank of India approval to open offices in the Maldives, and

New Zealand. It is seeking approval for operations in Bahrain, South Africa,

Kuwait, Mozambique, and Qatar, and is establishing offices in Canada, New

Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. It also has plans to

extend its existing operations in the United Kingdom, the United Arab Emirates,

and Botswana.

The tagline of Bank of Baroda is "India's International Bank".

56

4.4) EDUCATION LOAN POLICY IN BANK OF

BARODA:-

Baroda Education Loan

Education is the most important investment one makes in life. Higher studies

and specialization in certain fields call for additional financial support from

time to time.

Whether you are planning school education (nursery to standard XII) of your

child, pursuing a graduate or post-graduate degree, the Bank of Baroda

Education Loans, can help finance your ambitions and goals.

Following are the loan options available:

a) Baroda Vidya

b) Baroda Gyan

c) Baroda Scholar

d) Baroda Education Loan for Vocational Education & Training

a) Baroda Vidya:-

Bank of Baroda presents a one of its kind finance option for parents of students

pursuing school education. These loans are available for studies from Nursery to

Senior Secondary School.

No processing & documentation charges.

No Margin.

No security required.

57

Eligibility:

Should be an Indian national residing in India.

Student should have secured admission to a recognized school / High

school / Jr. College (including CBSE / ICSE / State Board) for any of the

following courses

1. Stage I: Nursery to V Th STD.

2. Stage II: VI Th to VIII STD.

3. Stage III: IX Th to XII th STD.

Coverage of expenses for:

Fee payable to college / school.

Examination / Library / Laboratory Fee.

Fee and other charges payable to hostel.

Purchase of books / equipments / instruments / uniforms.

Personal Computers / Laptops wherever required.

Caution deposit / building fund / refundable deposit supported by

institution bills / receipts.

Maximum loan amount: 4 lakhs

Repayment Period:

Loan for each yearly sub limit is repayable in 12 equal monthly

instalments. First instalment to be due 12 months after first disbursement

of each year's loan component.

58

The parents must be residing in the place for a minimum period of -3-

years, except in the case of transferable job.

Security:

In case the loan is given for purchase of computer the same is to be

hypothecated to the bank.

Rate of Interest:

0.50% concession in rate of interest to loans for girl students.

Interest to be serviced as and when applied during moratorium period.

Penal Interest @ 2% on overdue amount if the loan amount exceeds Rs.

2/- lacs.

Processing charges: Nil

b) Baroda Gyan:-

A loan product specially designed for students pursuing Graduation, Post -

Graduation, Professional & Other courses in India. Bank of Baroda extends a

helping hand to energize your studies and promote education of the youth.

No processing charges.

No Margin on loans upto 4 lacs.

Free Debit Card.

Courses Eligible:

All Graduation courses.

59

All Post Graduation courses & Doctorate courses.

Professional Courses viz. Engineering, Medical, Agriculture, Veterinary,

Law, Dental, Management, Computer, Ayurved, Homeopathy,

Physiotherapy, Hotel Management, Hospital Management, Interior

Designing, Architecture, Event Management, Mass Communication,

Fashion Technology, etc.

Computer certificate courses of reputed institutes accredited to Dept. of

Electronics or institutes affiliated to Universities.

Courses like C.A, ICWA, CFA, CS, etc.

Courses conducted by IIM, IIT, IISc, XLRI. NIFT etc.

Other courses leading to diploma / degree etc. conducted by

colleges/universities approved by UGC/Govt./ AICTE/ AIBMS/ ICMR

etc.

Courses offered in India by reputed foreign Universities.

Evening Courses of Institutes approved by State Central

Govt/UGC/AICTE/AIBMS/ICMR etc

Courses offered by National Institutes and other reputed private

institutions. The College/Institute must have been approved by the

State/Central Govt./UGC/AICTE,etc

Student Eligibility:

Should be Resident Indian.

Secured admission to either of above courses

60

A meritorious student (who qualifies for a seat under merit quota) will

also be eligible for loan under this scheme even if the student chooses to

pursue a course under Management Quota.

Or courses under Management Quota Seats considered under the scheme,

fees as approved by the State Government/ Government approved

regulatory body for payment seats will be taken, subject to viability of

repayment.

Additional concession of 1.00% to the students who have sought

admission in premier institutions viz. IIMs, IITs, IIFT, AIIMS, AFMC ,

ISB, NITs, XLRI, MDI, SPJIMR, IISC, SPJIM

Expenses covered:

Fee payable to college / Institution / University.

Examination / Library / Laboratory Fee.

Fee and other charges payable to hostel.

Purchase of books / equipments / instruments.

Personal Computers / Laptops wherever required.

Caution deposit / building fund / refundable deposit supported by

institution bills / receipts.

Any other expenses required to complete the course - like study tours,

project works, thesis, etc.

Maximum Loan Amount: Rs.10.00 Lacs.

61

Margin:

Upto 4 Lakhs Nil

Above 4 lakhs 5%

Margin is to be contributed on pro rata basis on year to year basis as and

when disbursements are availed.

Repayment holiday/ Moratorium Period:

Course period + 1 year or 6 months after getting job, whichever is earlier.

Repayment Period:

Repayable in 120 maximum Instalments for loan amount upto Rs 7.50

lacs

Repayable in 180 maximum Instalments for loan amount above Rs 7.50

lacs

Security:

Upto Rs.4 lacs : No security

Above Rs. 4.00 Lacs and up to Rs. 7.5 lacs: Collateral in the form of a

suitable third party guarantee along with assignment of future income.

Above Rs.7.5 lacs: Tangible collateral security equal to 100% of the loan

Amount along with assignment of future income.

Rate of interest:

Simple interest to be charged at monthly rests during the repayment

holiday / moratorium period.

62

0.50% Concession in rate of interest to loans for girl student.

Penal interest @ 2% p.a. on overdue amount, if the loan amount exceeds

Rs.4.00 lacs.

For loans above 4 lacs, interest rate will be 2 % above base rate for ISB,

Hyderabad Students which is 2 % less than that for students of other

institutes

c) Baroda Scholar:

Bank of Baroda presents financial assistance to students going abroad for

Professional / Technical studies. The loan offering is designed to empower you

with the financial capability to realise your dreams... Achieve your goals...

Eligibility of courses:

Graduate/Post Graduate / Doctorate / Job Oriented Professional / Technical

Courses offered by reputed Universities overseas.

Regular Degree/ Diploma courses like Aeronautical, pilot training, shipping etc.

The Institute should be recognized by the competent local aviation / shipping

authority and Director General of Civil Aviation/shipping in India.

Student Eligibility:

Should be an Indian National.

Secured admission to Professional/Technical Courses at foreign

Universities/Institutions

63

Coverage of expenses (for overseas studies):

Admission/Tuition fees to College/University.

Hostel/Mess charges.

Examination/Library/Laboratory fee.

Purchase of books/equipments/instruments.

Caution deposit/building fund/refundable deposit supported by institution

bills/receipts.

One way travel expenses/Passage money.

Purchase of computers if essential for completion of the course.

Any other expense required to complete the course e.g. study tour, project

work, thesis etc.

Maximum amount of the loan: 20 lakhs

Margin: 15%

Repayment Holiday / Moratorium Period:

Course period + 1 year or 6 months after getting job, whichever is earlier.

Repayment Period:

Repayable in 120 maximum Instalments for loan amount upto Rs 7.50

lacs

Repayable in 180 maximum Instalments for loan amount above Rs 7.50

lacs.

64

Security:

Upto Rs.4.00/- lacs : No security

Above Rs. 4.00 Lacs and up to Rs. 7.5 lacs: Collateral in the form of a

suitable third party guarantee along with assignment of future income.

Above Rs.7.5 lacs: Tangible collateral security equal to 100% of the loan

amount along with assignment of future income

Rate of Interest:

Simple interest during repayment holiday/moratorium period.

0.50% Concession in rate of interest to loans for girl student.

Penal interest @ 2% p.a. on overdue amount if loan exceeds Rs.4/- lacs.

d) Baroda Education loan for vocational education

and training:

1. Scheme shall be applicable at all our Branches across the country

2. The prospective borrower should be an Indian National and have secured

admission in a course approved /supported by a Ministry/ Dep‘t/

Organization of the Govt or a Company /Society/ Organization supported

by National Skill development Corporation or State Skill Missions /State

Skill Corporation leading to a certificate /diploma /degree etc. by Govt.

Organization or an Organization recognized /authorized by Govt to do so.

3. Courses eligible:

Vocational /Skill development courses of duration from 2 months to 3

years run or supported by a Ministry /Dept/Organization of the Govt or a

65

company /society/ organization supported by National Skill Development

Corporation or State Skill Missions /State Skill Corporations, preferably

leading to a certificate /diploma /degree etc. Issued by a Government

Organization or an organization recognized /authorized by the Govt. to do

so. State Level Bankers committee (SLBC) / State level Co-ordination

Committee (SLCC) may add other skill development courses

/programmes, having good employability.

a. Approved courses/training programs as per The National Skill

Certification and Monetary Reward Scheme

4. The Student should not be minor and in case he is a minor, documents

shall be executed by the parents and bank will obtain letter of ratification

from him/her upon attaining majority. There is no bar on maximum age

of the borrower

5. Need based finance to meet expenses will be considered subject to

following:

1 For courses of duration upto 3 Months Rs.20000/

2 For courses of duration >3 months and upto 6 months Rs.50000/

3 For Courses of duration >6 months to 1 year Rs.75000/

4 For courses of duration above 1 year Rs.150000/

66

6. Following expenses shall be considered for granting the loan under this

scheme:

Tuition/fee/Course fee

Examination /Library/Laboratory fee

Caution Deposit

Cost of Books/Equipments and Instruments

Any other reasonable expenditure found necessary for completion

of the course.

There will not be stipulation of any margin under the product i.e. Margin will

be Nil

Rate of Interest shall be Base rate plus 2% i.e. 12.50% at present and simple

interest shall be charged till the start of repayment. Servicing of interest during

Study Period and Moratorium Period shall be at the option of the borrower. In

case, interest is serviced during the study period and Moratorium period,

Concession of 1% in interest rate for entire tenure of loan shall be provided.

For girl students, an incentive in the form of 1% Interest Concession shall be

provided as being provided under our Education Loan Product.

Processing Charge/documentation Charges: NIL

Security:

No Collateral or third party guarantee will be obtained; however, the parent will

execute loan document along with the student borrower as joint borrower.

67

Moratorium Period and Repayment:

Repayment of loan will commence after a period of 6 months from the

completion of course of maximum 1 year duration. Whereas for courses of

duration of more than 1 year, Repayment will commence after a period of 12

months from the completion of course. Maximum Repayment period will be as

under:

Insurance:

Group credit Life Insurance Cover will be available at the option and cost of the

borrower. Cost of Insurance Premium may be financed by Bank by adding the

same in the project cost and shall be recovered along with EMIs of the loan.

The Borrower can repay the loan any time after commencement of

repayment without having to pay any prepayment charges.

Loans upto Rs 50,000 Upto 2 Years

Loans between Rs 50,000 to Rs

1 lakhs

2 to 5 Years

Loans above Rs 1 lakhs 3 to 7 Years

68

Interest rate:

Baroda Education Loan (w.e.f. 01.10.2013)

Loans upto Rs.4.00 lacs Base Rate i.e. 9.90%+ 2.50%

Loans above Rs.4.00 lacs and upto Rs

7.50 lacs

Loans above Rs.7.50 lacs Base Rate + 1.75%

Baroda Education Loan to students of

Premier Institutions

(No special concession for girl

students under this scheme.)

For List-A Institutions:

Upto Rs.15.00 Lacs :

Base Rate + 0.25%

Above Rs.15.00 Lacs: Base Rate .

For List B Institutions:

Upto Rs.7.50 Lacs: Base Rate + 0.75%

Above Rs.7.50 Lacs: Base Rate +

0.50%

Baroda Education Loan for Vocational

Education & Training

Base Rate + 2.00%

No special concession for girl students under this scheme.

0.50% concession in ROI to Education Loans sanctioned for the benefit of girl

student.

4.5) CENTRAL SCHEME OF INTEREST SUBSIDY

FOR EDUCATION LOANS:

Government of India, Ministry of Human Resources Development, and

Department of Higher Education has formulated an Interest Subsidy for

Education Loans for the students of economically weaker section (EWS) for

pursuing technical / professional courses in India.

69

Salient features of scheme are as under:

Scheme will be named as ―Education Loan Interest Subsidy Scheme‖

specially designed to provide Interest Subsidy for the period of

moratorium on educational loans taken by students from Economically

Weaker Sections from our Bank under the educational loan scheme of the

Indian Banks‘ Association to pursue Technical / Professional Education

studies in India.

Course fee (all inclusive) may exceed Rs. 10 lacs but subsidy amount will

be calculated only upto loan amount of Rs. 10 lacs.

Government of India will provide full interest subsidy during the

moratorium period on loans taken by students from the Bank. For loans

sanctioned prior to 01.04.2009, only interest on the amount disbursed

after 01.04.2009 is eligible.

After the moratorium period interest will be borne by student.

Student should belong to Economically Weaker Section (not on social

background) having parental family income from all sources not more

than Rs. 4.5 lac per annum.

State Government will designate appropriate authority or authorities who

are competent to issue Income certificate, based on economic index and

not social background, for the purpose of this scheme.

Subsidy will be available only to students enrolled in recognized

Technical / Professional courses (after XII) in India in Educational

Institutions established by Acts of Parliament, other institutions

recognized by the concerned Statutory Bodies, Indian Institutes of

Management (IIMs) and other Institutions set up by the Central / State

Government.

Interest rates charged on the loan shall be as per interest rates applicable

under our Education Loan Scheme.

70

Interest subsidy shall be available to the eligible students only once,

either for first undergraduate degree course or the post graduate degrees /

diplomas in India. Interest subsidy shall, however, be admissible for

integrated courses (graduates + post graduates).

Subsidy shall not be available if a student discontinues the course in

midstream, expelled from Institutions on disciplinary or academic

grounds.

There would be tag / marker on the degree and mark sheet of the

student indicating his repayment liabilities. Electronic tag will enable

employers to identify loanees. Nodal Bank for the scheme shall be Canara

Bank and monitoring shall be finalized in consultation with the Canara

Bank.

List of Technical / Professional courses for which the scheme would be

applicable, shall be publicized from time to time by UGC and AICTE and

the same would be immediately displayed at their websites, which may be

accessed for verification purposes.

Agreement is also to be signed by the student and Bank.

4.6) INTEREST RATE OF DIFFERENT BANKS:

Bank Loans upto

Rs. 4 lakh

Loans Rs. 4.0 - Rs.

7.5 lakh

Loans > Rs. 7.5

lakh

Avanse DHFL

11.50% Base

Rate +

Spread

11.50% Base Rate +

Spread

11.50% Base Rate

+ Spread

Axis Bank

17.15% , for

Girls -

16.15%

17.15% , for Girls -

16.15%

17.15% , for Girls -

16.75%

71

Bank of Baroda 12.75% 12.75% 12.00%

Bank of India

13.20% , for

Girls -

12.20%

13.20% , for Girls -

12.20%

12.70% , for Girls -

11.70%

Bank of Maharashtra 12.75% 12.25% 11.50%

Canara Bank 12.50% 13.50% 11.25%

Catholic Syrian Bank 12.00% 12.50% 12.50%

Central Bank of India

12.25% , for

Girls -

11.75%

12.25% , for Girls -

11.75%

12.25% , for Girls -

11.75%

City Union Bank

15.50% , for

Girls -

15.00%

16.50% , for Girls -

16.00%

16.50% , for Girls -

16.00%

Corporation Bank 11.85% 12.85% 12.35%

Dena Bank 11.80% 11.80% 11.80%

Federal Bank 13.45% 13.45% 13.45%

HDFC Credila

11.75% -

13.25% 11.75% - 13.25% 11.75% - 13.25%

IDBI Bank 11.25% 11.25% 11.25%

Indian Bank 12.50% 12.50% 12.50%

Indian Overseas Bank 12.25% 13.50% 13.25%

Karnataka Bank

13.50% for

Girls -

13.00%

14.00% for Girls -

13.50%

14.00% , for Girls -

13.50%

Karur Vysya Bank

14.00% for

Girls-13.50%

14.00% for Girls -

13.50%

14.50% , for Girls -

14.00%

72

OBC 12.75% 13.25% 12.00%

PNB 13.25% 14.25% 12.25%

SBI 13.35% 13.60% 11.60%

State bank of Mysore 12.75% 12.75% for Girls-

11.75%

11.75%

Tamilnadu Mercantile

Bank

14.25% 14.25% 13.75%

UCO Bank 12.70% 12.70% 12.45%

Union Bank of India

12.25% for

Girls -

11.75%

12.25% for Girls -

11.75%

12.00% for Girls -

11.50%

4.7) CALCULATION OF EMI

Loan details to calculate EMI:-

Loan Amount 10,00,000

Tenure 10 years

Interest rate 11.65%

Processing fees 0

Total amount payable: Rs.16, 97,459

Monthly Education Loan EMI: Rs. 14,145

73

Loan amount

1000000

Total interest

due

697459

Processing fees

0

Break-up of all total amount payable

Loan amount

Total interest due

Processing fees

Year Principal

Paid(A)

Interest

Paid(B)

Total

Payment(A+B)

Outstanding

Loan Balance

2015 18009 38573 56582 981991

2016 53398 111350 169748 923594

2017 65574 104169 169743 858019

2018 73637 96110 169747 784383

2019 82688 87059 169747 701694

2020 92850 76892 169742 608842

2021 104267 65479 169746 504575

2022 117085 52665 169750 387491

2023 131477 38270 169747 256014

2024 147638 22108 169746 108376

2025 108374 4788 113162 0

74

4.8) CASE STUDY OF BANK OF BARODA

Consumer Court case on The Branch Manager, Bank of Baroda - C.C.5/07

By G. Yadunadhan, President: The case of the complainant is that he availed a

loan of Rs.1,05,000/- from opposite party for studying MBA during the year

2004-06 with Second complainant as Co-obligant. The interest rate for the loan

was 9.25% since this was an educational loan. As per the loan agreement

complainant has to repay the principal amount only after getting the

employment. Complainant admits that to avoid future liability they were

making advance repayment of the principal amount. Now opposite party

charging 11.25% as interest which is an unfair trade practice and deficiency

of service. Complainant claims that all the co-operative banks and nationalized

banks are charging only 9.25% as interest. Complainant was materially

misleaded by the opposite party. Due to the higher interest rate, complainant

sustained huge financial loss. He is ready and willing to pay interest @ 9.25%

against 11.25%. Thereby deficiency on the part of opposite party. Opposite

party filed version stating that all averments and allegations in the complaint

denies and complaint is not maintainable within the meaning of section 2 (d)

and 2(g)of the Consumer Protection Act. Complainant admits the issuance of

loan of Rs.1,05,000/- and as per terms and condition of the sanction of loan the

rate of interest is always fixed on BPLR. The Government has provided a

scheme for 2% interest subsidy to education loan up to 4 lakhs sanctioned with

effect from 1.3.2004 to bright and needy students. However, it has been

clarified later that this interest subsidy is given credit to the eligible borrower

on receipt of the same from Government. Opposite party informed the

complainant regarding the rate of interest applicable for this loan account is

11.25% and not 9.25% as mentioned in the sanction letter. According to the

75

opposite party there is no deficiency of service or unfair trade practice

committed by them. The subsidy on education loan if at all prevailing as a

concession announced by the Government of India and the revocation of the

same is also by the Government and according to opposite party if the

complainant wants to agitate this they have to agitate before the authority who

announced it. The complainant has not raised any objection till the filing of the

complaint. The complaint is devoid of merits and liable to be dismissed with

cost. Points to be considered: (1) whether the complaint is maintainable? (2)

Whether the complainant is entitled to get any relief as prayed for? Since the

opposite party raised the contention of maintainability of the complaint, this

has been looked into first. The entire dispute is based on an agreement and the

rate of interest agreed as per that agreement, the complainant has to approach a

Civil Court deciding the same since this based on an agreement. Apart from

the above the rate of interest and concession of interest is approved by

Government of India. Since the Government changed in the policy that was

truly informed the same on 26.10.2004. That document is marked as Ext. B2.

The complainant could have questioned this on receipts of registered letter

itself. Moreover, the complainant claimed that all the Nationalised banks and

co-operative banks are charging only 9.25% as interest, for which he has not

produced any document. At the time of argument the Counsel appearing for

the complainant informed that based on this loan, he completed the MBA

course and got the job. Hence there is no merit in the complaint. On issue

No.2, complainant is not entitled to get any relief as prayed for in the

complaint and it is liable to be dismissed. In the result the complaint is

dismissed without cost. Pronounced in open Court this the 8th day of July

2008.

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Chapter 5:- Finding, Recommendations and

Conclusion

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5.1) Finding:-

I visited Bank of Baroda at Dombivli branch. The Credit Officer Dinesh Kumar

Singh has provided me with the relevant information regarding my project. So

from the visit made I came to know that Bank of Baroda has various types of

Education Loan i.e. Baroda Vidya, Baroda Gyan, Baroda Scholar and Baroda

Education Loan for Vocational Education & Training. Baroda Vidya is for

nursery to class 12th,

Baroda Gyan is for graduation and Baroda Scholar is to

study abroad. The maximum amount of education loan to study in India is Rs.

10 lakhs and to study abroad Rs. 20 lakhs. Education Loan is mostly availed by

middle class people and high class people approach for loan if they want to

study abroad. 100% loan amount is disbursed in Baroda Vidya, 95% loan

amount is disbursed in Baroda Gyan and 85% loan amount is disbursed in

Baroda Scholar. Bank of Baroda offers 0.5% concession to girls for Education

Loan. The processing fees are nil. The repayment of the loan starts after the

completion of the course plus 6 months after getting the job. Tax benefit is

given to guardian at the time of payment of interest on loan but the student does

not get any tax benefit on the repayment of education loan. It covers all the

expenses of books, library, travelling expenses, etc. The amount is disbursed in

the name of college/institute/university. If the loan is taken upto 7.5 lakhs then

there is no need of collateral security, but if it is above 7.5 lakhs then 100%

securities as much as loan amount is required.

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5.2) RECOMMENDATIONS:-

Banks should go for advertisement Campaign from scratch.

Banks should try to cash its brand image

Strong branch network should be made and staff personnel‘s incentives

should be increased.

Banks should increase its product line in education loans.

Special scheme for non-professional students as well as for professional

students should be increased.

Presence of some famous personality in advertisement or in pamphlets

insuring better retention in the mind of customers.

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5.3) CONCLUSION:-

The banks provide good service for the society by providing educational loan

for the student who unable to continue their higher education due to lack of

cash. On the basis of above findings it is clearly observe that public banks have

more reach, variety and flexibility in their education loan schemes. Maximum

loan for studies in India ranging from Rs. 7.50 lakhs to 10 lakhs and for studies

in abroad is Rs. 15-20 lakhs by public banks. All banks have same repayment

facility i.e. one year after completion of course or 6 months after securing a job

whichever is earlier. Normally, processing fees on education loan is nil. The

customers should also take extra care before availing for any education loan

from any bank. And also should search for the better offer and analyze before

availing the loan.

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The information is collected through various books, newspapers & magazines.

The secondary information is collected from various internet websites:-

http://www.bankofbaroda.com/educationloan

http://www.bankbazaar.com

http://www.myloancare.in

http://lawyersclubindia.com

http://www.rupeetimes.com

BIBLIOGRAPHY WEBLIOGRAPHY

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ANNEXURE

BANK OF BARODA

1) Is there a need for co-applicant while applying for Education Loan?

Yes No

2) Is there any age limit for education loan?

Yes No

3) What is the interest rate for education loan?

4) How the student is considered eligible for education loan?

5) Is there any special concession for girls?

Yes No

6) Do we get tax benefit on the interest paid on education loan?

Yes No

7) Which courses can I take education loan for?

8) What all documents are required for education loan?

9) How long is the tenure of the loan?

10) Will the loan be disbursed in favour of the Institute/college/university?

Yes No

11) What is the maximum loan amount disbursed to study in India and

abroad?

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12) Do we get loan sanction before admission?

Yes No

CUSTOMER

1) Have you ever availed for education loan?

Yes No

2) From which bank would you prefer to take education loan

Bank of Baroda (Public bank) Private bank

3) What is your opinion about education loan procedure?

Complex Difficult

Simple Can‘t say

4) Which type of interest rate would you prefer?

Fixed Floating

Adjustable rates Others

5) Which criteria are considered by you while selecting the education loan?

Lower rate of interest Easy availability

Flexible repayment period Quality of service

6) Do you think interest rates are competitive in Bank of Baroda?

Yes No

7) Are you satisfied with the bank from where you have availed the

education loan?

Yes No

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8) What do you think about the paper formalities of the education loan in

Bank of Baroda or any public bank?

Yes No

9) Duration taken by the bank from where you availed education loan?

0-1 month 0-2 month

0-3 months more than 3 months

10) Do you think, duration taken by the bank in sanctioning loan is?

Very little Justified

Long enough Very long

11) Do you think, duration given by the bank for repayment of Education

Loan is?

Very little Justified

Long enough Very long

12) Your opinion about Bank of Baroda education loan procedure?

Average Good

Very good Excellent

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ABBREVIATIONS

FI: Financial Institution

IBA: Indian Banks Association

HUF: Hindu Undivided Family

MBA: Master of Business Administration

ISB: Indian School of Business

IIM: Indian Institutes of Management

IIT‘s: Indian Institutes of Technology

NIT‘s: National Institutes of Technology

IIFT: Indian Institute of Foreign Trade

AIIMS: All India Institute of Medical Sciences

AFMC: Armed Forces Medical College

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SPJIM: S.P.Jain Institute of Management Studies

XLRI: Xavier Labour Research Institute

MBI: Modular Building Institute

IISc: Indian Institute of Science

UGC: University Grants Commission

AICTE: All India Council for Technical Education

AIBMS: Aib Merchant Services

ICMR: Indian Council of Medical Research

NIFT: National Institute of Fashion Technology

CA: Chartered Accountant

CS: Company Secretary

CFA: Chartered Financial Analyst

ICWA: Institute of Cost and Works Accountants of India

NSC: National Savings Certificate

BPLR: Benchmark Prime Lending Rate

MCA: Master of Computer Applications

MS: Master of Surgery

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CIMA: Chartered Institute of Management Accountants

CPA: Certified Public Accountant