RBI raps banks on collateral for small-ticket study loans

The Reserve Bank of India (RBI) has come down heavily on banks for asking collateral for educational loans below Rs 4 lakh.

Despite a central bank’s directive that banks should not insist on any security for educational loans up to Rs 4 lakh, RBI said it had received representations from various quarters that banks were demanding securities for such loans.

“We advise that banks must not, mandatorily, obtain collateral security in case of educational loans up to Rs 4 lakh,” RBI said on Tuesday.

The central bank has asked banks to issue instructions to their branches for strict compliance.

Banks are seeing increasing pressure on their educational loan portfolio, especially those taken for studying abroad as job market conditions in developed country is yet to improve. Bankers in the past demanded insurance cover for study loans and had also requested the government for providing guarantee at least for educational loans below Rs 4 lakh.