Government tells PSBs to clear education loans within 15 days, streamline approvals

The finance ministry has directed public sector banks to process education loan applications within 15 days of submission and establish a centralised credit processing system with clear internal standard operating procedure for expeditious approvals, said people familiar with the matter.

In case of rejection or return of a loan application, it must be approved by the next higher authority and clearly communicated to the student with reasons for the decision, they said.

"A series of meetings have been held with banks over the last two months to discuss delays in processing of education loan applications," a government official said on condition of anonymity, adding that it has been decided that lenders will ensure decisions on loan applications are made within three to five working days.

Sanction of education loans is based on proper documentation and depends on other factors including co-applicant or guarantor. The disbursement is done in stages as per demand directly to the educational institute. The average time for most banks in normal course is within a month.

Banks have also been directed to clear all cases pending till May and submit a status report.

The move follows several representations to the government on the issue. "There were some cases where loans were sanctioned, but disbursals were on hold due to unsatisfactory documentation. Those cases have also been put on the fast track," the official said.

Banks have been told to seek only those documents that are stipulated by Indian Banks' Association Model Education Loan Scheme.

A senior bank executive said that lenders had already begun aligning their loan operating system with the Vidya Laxmi portal.