The Parliament was informed that from now on, banks will have to provide reasons for rejecting any education loan applications.
The Finance Minister P. Chidambaram wrote to the Rajya Sabha saying, "Banks have been advised that rejection of education loan applications has to be with the approval of controlling authority of the branch concerned and the reason for rejection should be communicated to the applicants in writing."
He further added, "Indian Banks' Association has advised the banks to give wide publicity to their grievance redressal mechanism on education loans and to make effective use of the mechanism." Talking about the redressal mechanism he said, "complaints regarding educational loans, as and when received, are taken up with banks concerned for corrective action."
As per the data of Reserve Bank of India, banks had a total of Rs. 27000 crore as outstanding balance on education loans as on March 2009; a total outstanding balance on study loans of up to Rs. 35850 crore as on March 2010 and Rs. 41340 crore on march 2011.
Recently, the central bank had directed banks against rejecting education loan applications even if the place of residence of the loan applicant falls outside their service area.
In addition to this, the government is also working on a credit guarantee scheme to provide banks cushion from defaults on education loans.