Kerala High Court
Kerala High Court
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Application for an Educational Loan cannot be rejected solely because the applicant’s parents have unsatisfactory credit scores: Kerala HC

The Kerala High Court recently held that a student’s application for an educational loan could not be rejected only by reason that his parents have “unsatisfactory” credit scores.

Lydia Suzanne Thomas

Justice Anu Sivaraman of the Kerala High Court recently held that a decision to extend an education loan could not be dependent only on the “unsatisfactory credit scores” of the applicant’s parents (Pranav v. Branch Manager, SBI).

Pranav, a 20-year-old student in a Bachelor's degree programme filed a writ petition challenging the State Bank of India's rejection of his education loan application. He argued that the Bank rejected his application on the ground that the credit history of the petitioner's parents “did not permit the sanction of the educational loans.

The Bank countered that the educational loan was being utilised to finance the applicant’s education in the “management quota” of his institution. The Bank further produced the “model loan scheme” of the Indian Banks Association and a State Bank of India’s Office Memorandum that requires an applicant’s parents’ credit scores to be considered in deciding an extension of loan.

The Court, however, rejected the Bank’s submissions that the loan-applicant sought to finance his studies in the “management quota” stating that there was nothing on record to prove the same. Neither the loan application nor the order of rejection made any mention of this, the Court noted.

The Court directed the Bank to assess the “repayment possibilities” of the loan applied for, rather than the creditworthiness of the applicant’s parents, in its decision to extend an education loan.

In so holding, Justice Sivaraman relied on the “model loan scheme" referred to by the Bank and an earlier judgment of the Kerala High Court that had ruled:

“... the rejection of the request for loan on the ground that the father of the petitioner does not have the requisite credit score is arbitrary and violative of the spirit of the circular issued by the Reserve Bank of India (basis for the model loan scheme) which is binding on the Bank.”
Kerala High Court in W.P. (C) 19248/2019

The Court, therefore directed that the loan application be assessed per the Court’s ruling, within two weeks. Further, the credit scores of the loan-applicant’s parents were not to “be pressed into service to deny the loan”, if the loan-applicant was otherwise eligible, the judge said.

Advocate B Mohanlal argued for the petitioner while Advocate Jawahar Jose represented State Bank of India.

Read the Judgment here:

Pranav v. Branch Manager, SBI - Judgment dated July 3, 2020.pdf
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