Kochi ,24 July (H.S.):The Kerala High Court has ruled that banks are legally entitled to reject education loan applications if the parents, who are co-applicants, have poor credit scores, holding that such decisions are consistent with existing banking regulations and credit assessment norms.

Justice M.A. Abdul Hakhim delivered the ruling while dismissing a batch of petitions filed by students who challenged the denial of education loans solely on the ground that their parents had low CIBIL scores. The petitioners argued that refusing educational loans on this basis deprived them of their fundamental right to pursue higher education.

Rejecting the contention, the court observed that banks are well within their rights to evaluate the creditworthiness of co-applicants while processing education loan applications. It noted that the Credit Information Companies (Regulation) Act, 2005, allows financial institutions to examine the credit history and repayment behaviour of borrowers and co-borrowers before sanctioning loans.

The court further held that the refusal of an education loan cannot be construed as a violation of fundamental rights. It emphasised that applicants are required to satisfy the eligibility conditions laid down under the Indian Banks' Association (IBA) Model Education Loan Scheme and the Reserve Bank of India's master circulars governing education loans.

However, the High Court offered relief to the petitioners by directing banks to reconsider their loan applications if they produce an alternative co-applicant with a satisfactory credit score in place of their parents.

The court also clarified the scope of the Central Government's Credit Guarantee Fund Scheme for Education Loans (CGFSEL). It observed that the scheme does not relax the eligibility criteria for sanctioning loans. Instead, it merely provides a guarantee to banks in the event of a borrower defaulting on repayment and cannot be treated as a substitute for mandatory credit assessment.

Banks had argued that evaluating the financial discipline and repayment history of applicants and co-applicants is essential under the Credit Information Companies Act and helps reduce the risk of bad loans. Accepting this argument, the High Court affirmed that prudent credit evaluation remains a legitimate and necessary part of the education loan approval process.

---------------

Hindusthan Samachar / Arun Lakshman