RBI Guidelines on Collateral Free Education Loans

RBI Guidelines on Education Loans
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An education loan is an effective option for arranging the finance to study abroad at a foreign university. In the year 2021-22, nearly 4.61 lakh students took educational loans to study abroad. The banks and financial institutions in India provide education loans strictly as per the directions provided by the Reserve Bank of India (RBI). The RBI has issued a certain set of guidelines for unsecured loans i.e. collateral-free education loans to study abroad or in India. Let’s check and understand all major RBI Guidelines on collateral-free education loans.

What are the RBI Guidelines on Collateral Free Education Loan?

The Reserve Bank of India is the central bank of the country. It is a regulatory body that is responsible for the regulation of the Indian banking system. All the RBI-regulated entities providing education loans to the students work as per the guidelines set by RBI. All the banks are required to follow the Model Education Loan Scheme formulated by the IBA (Indian Banks’ Association). You must be informed while applying for unsecured education loans. Check more details below:

  • As per the RBI guidelines, the bank shall not demand any kind of security or collateral for education loans up to INR 4 lakhs
  • If the loan amount is above INR 4 lakhs and below INR 7.5 lakhs, a guarantor will be required for the education loan
  • Any amount above INR 7.5 lakh will require tangible collateral to be pledged with the bank. 

Also Read: Applying for an education loan to study abroad? Read this blog and know the latest guidelines issued by RBI on credit report

Latest RBI Guidelines on Unsecured Education Loans

All the scheduled commercial banks regulated by RBI are directed to provide education loans as per the Model Education Loan Scheme formulated by the Indian Banks’ Association. The IBA keep revising the MELS from time to time and the last revision was made in 2022. Hence, as of now, all the scheduled commercial banks are following the Model Education Loan Scheme 2022. Check the latest guidelines on unsecured loans by RBI as per the MELS 2022:

  • The MELS, 2022 will be applicable only to the scheduled commercial banks regulated by the Reserve Bank of India
  • No collateral or guarantor is required for education loans to study in India or abroad if the loan amount is less than INR 4 lakhs
  • All the scheduled commercial banks shall not reject any education loan application to study abroad or in India, for reasons that the borrower’s residence does not fall under the bank’s service area.
  • The RBI has clearly stated that if there is any complaint against any scheduled commercial bank related to the rejection of an education loan due to the above-mentioned issue, the complaint can be filed with the concerned bank. 
  • If there is no response from the bank for the complaint within one month or the response is not satisfactory, the student can file a complaint under the RBI Ombudsman Scheme.
  • As stated by RBI, “No margin may be insisted upon for loans up to INR 4 lakh. However, for loans of higher amounts, the margin requirement may be 5% for inland studies and 15% for studies abroad.

Also Read: Credit report showing DPD mark? Check out this blog and know what is Dues Past Day in CIBIL Report

RBI Guidelines for Interest Rate on Unsecured Education Loan

The Reserve Bank of India has deregulated interest rates on education loans sanctioned by Scheduled Commercial Banks. The interest rate on education loans to study abroad will be determined by the banks with the internal decision made by the respective Board of Directors. However, the banks shall follow the regulatory guidelines on interest rates on loans and advances as directed by the RBI. Check the major details below:

  • The interest rate on unsecured education loans must be set considering the base rate and the spread.
  • All the banks shall determine their actual lending rates or interest rates by adding the components of spread to the internal benchmark rate in case the floating rates are linked to an internal benchmark rate
  • All the scheduled commercial banks shall have the freedom to offer both the categories of interest rates i.e. fixed or floating interest rates.

FAQs on RBI Guidelines on Collateral Free Education Loans

What is the maximum amount of unsecured loans that can be obtained from government banks?

As directed by the Reserve Bank of India, you can get up to INR 4 lakhs in education loans without collateral. 

Is the MELS, 2022 applicable to all banks and financial institutions?

No. As of now, the Model Education Loan Scheme, 2022 (MELS) is applicable only to the scheduled commercial banks regulated by the Reserve Bank of India. As the scheme is formulated by the Indian Banks’ Association (IBA), it is currently not applicable to private banks, NBFCs and other financial institutions.

How to raise a complaint against the bank if my education loan is rejected without any reason?

If the bank is not approving your education loan despite fulfilling all the eligibility criteria, you must file a complaint on the bank’s portal. If you do not receive any response from the bank within one month or the response is not satisfactory, you can file a complaint with RBI Ombudsman.

What is the interest rate on education loans to study abroad?

The interest rate on education loans to study abroad depends upon various factors such as loan amount, repayment period, net monthly income of applicant etc. Usually, the bank charges interest rates ranging from 8% to 16%.

Can I get an INR 6 lakh education loan without collateral?

Yes. Most of the public sector banks in India offer collateral-free education loans up to INR 7.5 lakhs. However, you must have a guarantor for you in order to get the loan approved as any amount above INR 4 lakhs to INR 7.5 lakhs will require a guarantor.

RBI Guidelines on Collateral Free Education Loans is applicable for all the scheduled commercial banks approving education loans to study abroad or in India. Always stay informed about the rules and regulations before applying for a loan in order to experience a smooth loan processing.

To know more about the loan application process, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience. 

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About Shekhar Suman

Shekhar is a versatile writer with a passion for sharing knowledge and creativity. With expertise in crafting informative blogs on study abroad and finance, Shekhar helps readers navigate the complexities of education and financial planning. Most of his writings blend the practicality of finance and the beauty of language, making a meaningful impact in both spheres. Beyond his professional pursuits, he finds solace in the writing Shayari.

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