The Reserve Bank of Indiahas stuck to its stand that the commercial banks should not ask collaterals on education loans for sum below Rs. 4 lakh.
The RBI had first issued this order in the year 2001. It has been pressurized to restate its guideline after reports from numerous sources that banks are asking collaterals for loans of lesser amounts below Rs. 4 lakh.
Banks had overlooked the guideline set by the RBI that collaterals should not be demanded for education loans for small sums as they were experiencing stress in this section of loans.
Due to the lack of security, banks are slightly worried about offering collateral free education loans. Education loans up to Rs. 4 lakh form about 90% of the total amount of education loans offered by the banks.
Bankers say that this is the right time for producing a guarantee fund only for collateral free education loans.
This would work as a support for bank such that that if the borrower defaults then the bank can take the help of the fund.