Educational Loans and CIBIL Score [UPSC Current Affairs]

In June 2023, the Kerala High Court upheld that banks can’t refuse education loans over a student’s CIBIL score. In this article, you can read more about this ruling and also about the CIBIL score. This topic is relevant in the social issues and current affairs segments of the UPSC Syllabus.

What is CIBIL?

A Credit Information Bureau (India) Limited (CIBIL) score is a three-digit numerical summary of one’s credit history, which involves an individual’s credit payment history across loan types and credit institutions over a period of time.

You can read more about CIBIL score in the linked article.

Court Observation on CIBIL Score

• The Kerala High Court said that a student’s credit score cannot be a factor in rejecting an education loan application.
• In KM George vs The Branch Manager, the court said that the rejection of the student’s loan application for a deficiency in his father’s credit score was arbitrary and violative of the spirit of the circular issued by the Reserve Bank of India.
• The student was given a scholarship by his university for the fee of the first two semesters on account of his merit, the court found that the bank had failed to assess the student’s repaying possibilities based on his course’s potential and his future earning capabilities, consequently depriving him of an opportunity to pursue his studies.

RBI Circular on Educational Loans

In April 2001, the RBI issued a circular in which it mentioned a comprehensive “model educational loan scheme” prepared by the Indian Banks Association (IBA) “for adoption by all banks”.

• The scheme aimed to provide financial support from the banking system to deserving or meritorious students pursuing higher education in India and abroad. Additionally, it was announced in the Union Budget for 2001–2002. 
• While this scheme provided broad guidelines for banks to operationalise education loans, its implementation by banks varied.

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