Case Law Details
Dilha Jan Govindan Vs State Bank of India (Kerala High Court)
Kerala HC Upholds Rejection of Education Loan Based on Parent’s Low Credit Score, Permits Fresh Consideration with Eligible Co-Borrower
The Kerala High Court considered a batch of writ petitions filed by students pursuing different courses who challenged the refusal of banks to grant education loans on the ground that the credit score or credit report of the co-borrower, being one of the parents, was unsatisfactory. The principal relief sought was a direction to the banks to grant education loans without considering the parents’ credit scores. Since the issues raised were common, the petitions were heard together. State Bank of India was the respondent bank in all petitions except one, in which Indian Bank was the respondent.
The petitioners submitted that denial of education loans based on the co-borrower’s credit score was illegal. They argued that repayment depended upon the student’s earning capacity after completion of education and that denying loans to meritorious students lacking financial resources defeated the objectives of the Model Educational Loan Scheme formulated by the Indian Banks’ Association (IBA). One petitioner additionally relied upon the Credit Guarantee Fund Scheme for Educational Loans (CGFSEL), contending that the Central Government’s guarantee in cases of default made the credit score of the borrower or co-borrower irrelevant. The petitioners also relied on earlier decisions of the High Court and contended that refusal of loans violated Articles 14 and 41 of the Constitution of India.
The respondent banks argued that education loans were not available as a matter of right and could be granted only in accordance with the extant IBA Model Educational Loan Scheme and the banks’ Master Circulars. They referred to the evolution of the IBA Scheme from 2001 onwards and submitted that the current scheme specifically permits consideration of the credit score and credit report of the borrower or co-borrower. The banks relied on the decision in Haritheeth P., which considered the extant IBA Scheme and held that adverse credit history of the co-borrower could justify rejection of an education loan application. They further contended that the petitioners had not challenged the validity of the IBA Scheme or the Master Circulars. Regarding CGFSEL, the banks submitted that it guarantees lending institutions against defaults and does not govern eligibility for grant of education loans. They also referred to the objectives of the Credit Information Companies (Regulation) Act, 2005, stating that verification of credit history helps reduce non-performing assets.
The High Court observed that the Division Bench decision in Arya v. Reserve Bank of India had held that there is no inherent or fundamental right to obtain an education loan and that denial of an education loan does not infringe the petitioners’ fundamental rights. The Court examined earlier Single Bench decisions relied upon by the petitioners, including Noorjahan N.S., Pranav S.R., K.M. George, and Kiran David, and noted that those decisions had been rendered in the context of earlier guidelines. The Court also referred to the later decision in Haritheeth P., which considered the extant 2021 IBA Model Educational Loan Scheme and held that the bank is bound to reject or return an application where the co-borrower has an unsatisfactory credit score or adverse credit report. Since the petitioners had not challenged the applicable IBA Scheme or the banks’ circulars and had not established any violation of those provisions, the Court held that their request to direct reconsideration without regard to the co-borrower’s credit score could not be accepted.
On the contention based on CGFSEL, the Court referred to the earlier decisions in Nizamudheen P. and the dismissal of the writ appeal arising therefrom. It held that CGFSEL is a guarantee mechanism for loans already sanctioned and not a scheme governing the grant of education loans. Referring to the relevant clauses of the scheme, the Court noted that eligibility for an education loan continues to be governed by the IBA Model Educational Loan Scheme, that lending institutions must evaluate and sanction loans in accordance with that scheme, and that the guarantee covers only part of the defaulted amount while leaving responsibility for recovery with the lending institution. The Court concluded that CGFSEL does not dilute the eligibility conditions under the IBA Model Educational Loan Scheme or render verification of the credit score and credit report of applicants and co-applicants unnecessary.
The Court further held that, considering the objectives of the Credit Information Companies (Regulation) Act, 2005, the banks were entitled to consider the credit score and credit report of the co-borrower while processing education loan applications. It found the banks’ stand that applicants were ineligible on account of the lower credit score or unsatisfactory credit report of the co-borrower or parent to be sustainable. Accordingly, the writ petitions were dismissed. However, the Court directed that the respondent banks should reconsider the applications if the applicants provide an eligible co-borrower having a satisfactory credit score and credit report.
Cases Discussed
- State Bank of India and Another v. Ajith Sajeevan (Kerala High Court), [2025:KER:28680]
- Aleena Sreejith and Another v. Union of India and Others (Kerala High Court), [2024:KER:27888]
- Haritheeth P. v. The Branch Manager, State Bank of India and Another (Kerala High Court), [2024:KER:78076]
- Nizamudheen P. v. Union of India and Others (Kerala High Court), [2023:KER:33369]
- Nizamudheen P. v. Union of India and Others (Kerala High Court), [2023:KER:19425]
- Kiran David v. Assistant General Manager, State Bank of India, Tvm and Another (Kerala High Court), [2022 (2) KHC 373]
- K.M. George v. The Branch Manager, State Bank of India and Others (Kerala High Court), [2020:KER:335641]
- Pranav S.R. v. The Branch Manager, State Bank of India and Others (Kerala High Court), [AIR 2020 Ker 161]
- Noorjahan N.S. v. The General Manager, State Bank of India and Others (Kerala High Court), [2019:KER:72386]
- Arya v. Reserve Bank of India (Kerala High Court), [2015 (4) KLT 478]
- Kasinathan v. Branch Manager, Canara Bank, Town Hall Road, Madurai (Madras High Court), [Laws (Mad)-2012-4-52]
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
1. All these Writ Petitions are filed by students who have been pursuing their studies in different courses. They are aggrieved by the refusal of the Respondents/Banks to grant Educational Loan applied by them on the ground that the Credit Score/Credit Report of the co-borrower, who is one of the parents of the Petitioners, provided by the Credit Information Companies is on the lower side. In all these Writ Petitions, the substantial prayer sought for is to direct the Respondents/Banks to grant Educational Loans to the Petitioners ignoring the Credit Score of their parents. The grounds raised in these Writ Petitions are almost identical and the precedents relied on by them are also the same. Since the questions to be considered in these Writ Petitions are common, I am not referring to the pleadings in these Writ Petitions. The Respondents/Banks have filed Statements producing certain documents opposing the prayers in the Writ Petitions. In all the Writ Petitions except W.P.(C) No.45597/2025, State Bank of India is the Respondent/Bank. In W.P.(C) No.45597/2025, Indian Bank is the Respondent Bank.
2. I heard the learned Counsel for the Petitioners, Sri. Jaishankar, Sri. Sabu Francis, Sri. Varughese M. Easo, Sri. Ram Mohan Liladharan, Sri. T.U. Sujith Kumar and Sri. Saju Panicker, and the learned Counsel for the Respondent Bank in W.P.(C) No.45597/2025, Sri. Binoy Vasudevan and the learned Senior Counsel for the Respondent Bank in the other Writ Petitions, Sri.K.K. Chandran Pillai, instructed by Adv. Sri. S. Ambili.
3. Learned Counsel for the Petitioners contended that the denial of Educational Loan on the basis of the Credit Score of the co-borrower is illegal and unsustainable. Educational Loan is to be repaid by the students who are availing the Educational Loan. It is the repayment capacity of the student on securing a job after completing the education that has to be the deciding factor for granting Educational Loan. If Educational Loan is denied to meritorious students who are not having sufficient resources to meet their educational expenses, it will defeat the very purpose for which the Educational Loan Scheme was formulated by the Government. The main objectives of the Model Educational Loan Scheme formulated by the Indian Banks’ Association pursuant to the policy decision taken by the Government are to provide financial support from the banking system to meritorious students for pursuing higher education in India and abroad and to ensure that a meritorious student, though poor, is provided an opportunity to pursue education with financial support from the banking system at affordable terms and conditions. If the stand of the Respondent Banks is accepted, it would defeat the very purpose for which the scheme is formulated. Apart from the above contentions, the Petitioner in W.P.(C) No.4667/2026 has raised an additional contention that in view of the Credit Guarantee Fund Scheme for Educational Loans (CGFSEL) formulated by the Government of India, the repayment of the Educational Loan is guaranteed by the Central Government when there occurs a default in repayment by the borrowers and in view of the CGFSEL, the Banks need not be apprehensive about the repayment of the Educational Loan and in such case, the Credit Score/Credit Report of the borrowers are totally irrelevant. The learned Counsel for the Petitioners relied on the Single Bench decisions of this Court in Noorjahan N.S. v. The General Manager, State Bank of India and Others [2019:KER:72386], Pranav S.R. v. The Branch Manager, State Bank of India and Others [AIR 2020 Ker 161], K.M. George v. The Branch Manager, State Bank of India and Others [2020:KER:335641 and Kiran David v. Assistant General Manager, State Bank of India, Tvm and Another [2022 (2) KHC 3731 to substantiate the point that the Credit Score/Credit Report of the co-borrower of the Education Loan is not relevant to consider for the grant of Educational Loan. The decision in Aleena Sreejith and Another v. Union of India and Others [2024:KER:278881 is cited to substantiate the point that in view of the CGFSEL, the Banks need not consider the Credit Score/Credit Report of the co-borrower/parent. Learned Counsel concluded their arguments contending that the action of the Banks denying Education Loan is in violation of the fundamental rights guaranteed under Articles 14 and 41 of the Constitution of India.
4. Learned Senior Counsel for the Respondent/State Bank of India and the Counsel for the Respondent/Indian Bank contended that the Petitioners cannot claim Educational Loan as a matter of right. The Banks can grant Educational Loans to the Petitioners only if they satisfy the relevant conditions provided under the IBA Model Educational Loan Scheme formulated by the Indian Banks’ Association and the Master Circulars for Educational Loans formulated by the Banks. The learned Senior Counsel invited my attention to the various clauses in the extant IBA Model Educational Scheme and the Master Circular for Educational Loans formulated by the State Bank of India to convince this Court that the Credit Score/Credit Report of the co-borrower/parent is a relevant factor to be considered while considering an application for Educational Loan. The Respondents/Banks have placed on record the IBA Model Educational Loan Schemes of the years 2001, 2012, 2021 & 2022 to demonstrate the evolution of various terms and conditions for granting Educational Loans. The Model Educational Loan Scheme was formulated by the Indian Banks’ Association at the instance of the Central Government on the introduction of the Educational Loan Scheme in the year 2001. The Educational Loan Scheme was announced in the Union Budget for 2001-2002. The Central Government introduced the Educational Loan Scheme after the Finance Minister of the Government of India held a meeting with Chief Executives of the Public Sector Banks, in which the role of Commercial Banks in facilitating the pursuit of higher education by poor and meritorious students is highlighted. The Indian Banks’ Association constituted a study group to examine the issue in detail. Based on the recommendation of the study, a comprehensive Educational Loan Scheme was prepared by the Indian Banks’ Association for adoption by all Banks. On account of the difficulties that arose during the course of implementation of the Model Educational Loan Scheme from time to time, the Scheme was modified from time to time. It is well settled by the Division Bench of this Court in Arya v. Reserve Bank of India [2015 (4) KLT 478] that right to get Educational Loan is not a fundamental right; that right to higher education is not a fundament right and that there is no inherent right to get Educational Loan. It is true that learned Single Judges of this Court in various decisions cited by the Counsel for the Petitioners held that the Credit Score of the co-borrower/parent of the student is not relevant to consider for the eligibility of Educational Loan but in Haritheeth P. v. The Branch Manager, State Bank of India and Another [2024:KER:78076], the learned Single Judge of this Court considered the earlier decisions of this Court and the extant IBA Model Education Loan Scheme, and thereafter found that the earlier decision in Pranav S.R. (Supra) was rendered based on IBA Guidelines then in vogue, which did not contain any specific provision for reckoning the Credit Score and the Credit Report of the borrower/co-borrower for deciding the loan application; that if the student/parent/guardian has no credit history they are assigned to be creditworthy and that in case of adverse credit history, the Banks at their discretion, can frame suitable criteria based on their risk appetite. It is this decision which holds the field now, which was passed in accordance with the extant IBA Model Educational Loan Scheme, and hence, in view of the said decisions, the Petitioners are not entitled to get Educational Loans. Learned Senior Counsel pointed out that the Petitioners have not challenged the IBA Model Educational Loan Scheme and the Master Circular for Educational Loans formulated by the Bank. In such case, the Petitioners are entitled to succeed only if they are able to demonstrate that their applications for Educational Loans are rejected in violation of the IBA Model Educational Loan Scheme and the Master Circular for Educational Loans formulated by the Bank. The learned Senior Counsel further contended that the decision rendered by this Court in Aleena Sreejith (supra) was under a misconception that the CGFSEL is intended to ensure that meritorious students are not denied the chance of education on account of the lack of funds. It is clear from the pleadings extracted in the said decision that the Petitioner therein claimed grant of Educational Loan under the CGFSEL. The purpose of the CGFSEL is to guarantee the member lending institutions in case of default made by the borrowers of Educational Loans. The provisions of the CGFSEL has nothing to do with the case of consideration of loan applications from the students for Educational Loan. Learned Senior Counsel invited my attention to various provisions in the CGFSEL to substantiate that it is subject to the provisions of the IBA Model Educational Loan Scheme. Learned Senior Counsel invited my attention to the object of enacting the Credit Information Companies (Regulation) Act, 2005. It is contended that in order to reduce the percentage of Non-Performing Assets (NPAs), the Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act in the year 1993 (now renamed as the Recovery of Debts and Bankruptcy Act) by simplifying the procedure for recovery of the defaulted loans and setting up a separate Tribunal for adjudication. Since the provisions under the said Act did not yield the desired result, Parliament enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act in the year 2002. As per the provisions of the said Act, the Banks and Financial Institutions are given power to deal directly with the secured assets. The above two enactments are introduced with the intention to reduce the percentage of NPAs by providing provisions for expediting the recovery of the defaulted loans. Since it was found that the borrowers were availing loans and other financial assistance from different Banks without disclosing their existing loans and there was no mechanism for the Banks and other Financial Institutions to check whether the borrowers were indebted to other Banks and Financial Institutions, the Parliament enacted Credit Information Companies (Regulation) Act in the year 2005 in order to provide a mechanism for collecting credit information of the borrowers from the Banks and other Financial Institutions and to furnish and share the information with the member Banks/Financial Institutions. When the financial credibility of the Applicants for loans is verified at the time of granting the loan itself with reference to their credit history provided by the Credit Information Companies, it would avoid the possible defaults of the loan and would reduce the NPAs. If the Applications for Educational Loans are considered without reference to the Credit Score/Credit Report of the Applicants, it would defeat the very purpose for which the Credit Information Companies (Regulation) Act, 2005, is incorporated by the Parliament. As a matter of fact, a major share of the NPAs represents the defaulted Education Loan. The learned Senior Counsel cited the decision of the learned Single Judge of this Court in Nizamudheen P. v. Union of India and Others [2023:KER:19425] and contended that this Court has already considered similar contentions on the strength of the CGFSEL and rejected the same and upheld the rejection of the Educational Loan by the Bank. The said decision was confirmed by the Division Bench of this Court. The decision in Aleena Sreejith (supra) was rendered without noticing the earlier decision in Nizamudheen P. (supra). Learned Senior Counsel concluded his arguments praying to dismiss the Writ Petition and also submitted that the Respondent Bank is ready to reconsider the Loan Applications submitted by the Petitioners if they are willing to substitute the co-borrowers with sufficient Credit Score and good Credit History. Learned Counsel for the Respondent Bank in W.P.(C) No.45597/2025 also advanced arguments in support of the arguments made by the learned Senior Counsel.
5. I have considered the rival contentions.
6. In Arya (supra), the Division Bench of this Court fully endorsed the view taken by the Division Bench of the Madras High Court in Kasinathan v. Branch Manager, Canara Bank, Town Hall Road, Madurai [Laws (Mad)-2012-4-52] holding that there is no inherent right to Educational Loan; that in terms of Article 21A and Article 41, while there is a right to education, there is no right to Educational Loans; that there is no fundamental right to higher education; and it is for the State, IBA and the Bank to formulate its policies for the enhancement of educational and economic interests of Scheduled Castes and Scheduled Tribes in view of the enabling constitutional provisions in Article 46. In view of this decision, it could not be held that the denial of Educational Loan by the Banks affects the fundamental rights of the Petitioners.
7. In Noorjahan N.S. (supra), though the learned Single Judge of this Court held that the rejection of the request for Educational 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 which is binding on the Bank, the judgment concluded with the direction that the Bank would be free to insist another relative of the Petitioner acceptable to the Bank to act as joint borrower in the place of the father of the Petitioner for the purpose of disbursing the loan. This direction in the concluding portion of the judgment has, in fact, nullified the observations noted above in the said judgment. In Pranav S.R. (supra), the learned Single Judge of this Court, following the judgment in Noorjahan N.S. (supra), held that unsatisfactory Credit Scores of the parents of the Petitioner cannot be a ground to reject the Educational Loan in view of the fact that the repayment capacity of the Petitioner after his education should be a deciding factor as per Clause 10 of the RBI Scheme. The decision in K.M. George (supra) is rendered directing reconsideration of the loan application irrespective of the CIBIL Score of the father/co-borrower following the decisions in Noorjahan N.S. (supra) and Pranav S.R. (supra). The decision in Kiran David (supra) was rendered following the judgment in Pranav S.R. (supra). In the said decision, the Banks therein were directed to reconsider the Loan Applications submitted by the Petitioners therein, disregarding the low Credit Score of the co-borrowers. In State Bank of India and Another v. Ajith Sajeevan [2025:KER:28680], the Division Bench of this Court considered the challenge against the judgment of the learned Single Judge directing the consideration of Educational Loan applications submitted by the Petitioners without regard to their Credit Reports. In the said decision, the legal question as to whether such a direction could have been issued is kept open to be urged in appropriate cases since it is found that the Petitioners have not taken advantage of the impugned judgment. The learned Single Judge of this Court in Haritheeth P. (supra) has considered the rejection of the Educational Loan on the ground of delinquency noted in the Credit Score of the Petitioner’s father. The learned Single Judge considered the decision in Pranav S.R. (supra) and found that the said decision is rendered as per 2001 Model Educational Loan Scheme and as per the 2021 Model Educational Loan Scheme, the CIBIL and Credit Information Reports are to be used for ascertaining the credit discipline of the loan applicants; that after the introduction of the Credit Information Companies (Regulation) Act, 2005, the creditworthiness of a proposed borrower would largely depend upon his Credit Score and Report; and that on a conjoint reading of the provisions, it is evident that the Bank is bound to reject/return the Loan Application when faced with unsatisfactory Credit Score and adverse Credit Report of the co-borrower. Learned Single Judge dismissed the Writ Petition holding that, in the absence of any challenge to the Schemes or the Circulars making requisite Credit Score and satisfactory Credit History mandatory for the grant of Educational Loans, the prayer for directing the Bank to process the Petitioner’s Application for Educational Loan in spite of an adverse report against the co-borrower cannot be sustained. In the present cases also, there is no challenge against the relevant Schemes and Circulars. In such case, I am bound to follow the decision in Haritheeth P. (supra). In such case, the only question before this Court is whether the rejection of the Applications for Educational Loan by the Respondents/Banks is in violation of the extant IBA Model Educational Loan Scheme and the Circulars issued by the Respondents/Banks. The Petitioners could not point out any violation of the provisions of the said Scheme and Circular before this Court. Hence, in the light of the decision of the learned Single Judge in Haritheeth P. (supra) considering the extant IBA Model Educational Loan Scheme, the prayer of the Petitioners to reconsider the Application of their Educational Loan disregarding the Credit Score/Credit History of the co-borrower parent could not be allowed.
8. With regard to the contention raised by the Petitioner in W.P.(C) No.4667/2026 relying on the CGFSEL, it is seen that the claim raised by an Applicant for Educational Loan on the strength of the said Scheme was elaborately considered and rejected by this Court in Nizamudheen P. (supra). Though a Writ Appeal was filed against the judgment in the said decision, the same was dismissed by the Division Bench of this Court as per the decision in Nizamudheen P. v. Union of India and Others [2023:KER:33369]. The learned Single Judge of this Court rendered the decision in Aleena Sreejith (supra) without noticing the Single Bench decision and Division Bench decision in Nizamudheen P. (supra). The Single Bench as well as the Division Bench in Nizamudheen P. (supra) has found that the CGFSEL is not a Scheme for granting loans, but it is a Scheme for guaranteeing the Educational Loans disbursed by the lending Banks in case of any default by the borrower.
9. Clause 5(v) of the CGFSEL defines ‘Educational Loan’ as any financial assistance by way of loan extended by the lending institution to the eligible borrower for higher education as per the IBA Model Educational Loan Scheme. Clause 5(iii) defines ‘eligible borrower’ as a new or existing borrower who meets the eligibility criteria under the IBA Model Educational Loan Scheme and executed loan documents with the lending institutions to avail the Educational Loan. Clause 7(i) provides that the fund shall cover the Educational Loans extended by Member Lending Institution(s) to an eligible borrower under the IBA Model Educational Loan Scheme. Clause 10(i) provides that the lending institution shall evaluate and sanction Educational Loan in accordance with the IBA Model Educational Loan Scheme. Clause 10(vii) provides that payment of guarantee claim by the National Credit Guarantee Trustee Company (NCGTC) to the lending institution does not take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower with applicable interest and that the lending institution shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of Educational Loan owed to it and initiate such necessary actions for recovery of the outstanding amount, including such action as may be advised by NCGTC. As per Clause 12, the maximum guarantee cover is only 75% of the defaulted amount. As per Clause 13(iv), in the event of default, the lending institution shall exercise its rights, if any, to take over the assets of the borrowers and the amount realised, if any, from the sale of such assets or otherwise shall first be credited in full by the lending institutions to NCGTC before it claims the remaining portion of the guaranteed amount. It is clear from these provisions that the Applicant has to satisfy the eligibility conditions as per the IBA Model Educational Loan Scheme to get an Educational Loan. The provisions of the CGFSEL could not be considered for the grant of Educational Loan under the IBA Model Educational Loan Scheme. The CGFSEL does not in any way dilute provisions in the IBA Model Educational Loan Scheme. In view of the responsibility of the lending institutions to recover the defaulted loan even after getting 75% of the defaulted amount from the Guarantee Fund under the CGFSEL, it could not be said that the confirmation of satisfactory Credit Score/Credit Report of the Applicants and Co-Applicants for Educational Loan is unwarranted on account of the CGFSEL providing guarantee to the Banks.
10. Considering the objectives of the Credit Information Companies (Regulation) Act, 2005, it could not be said that the Bank shall not consider the Credit Score/Credit Report of the co-borrower when the Bank considers an Application for Educational Loan.
11. In view of the aforesaid discussion, I find that the stand of the Respondents/Banks that the Applicants are not eligible for Educational Loan on account of the lower Credit Score/unsatisfactory Credit Report of the co-borrower/parent is sustainable. These Writ Petitions are liable to be dismissed. However, the Respondents/Banks shall reconsider the Applications, if the Applicants provide eligible co-borrower with satisfactory Credit Score/Credit Report.
12. Accordingly, these Writ Petitions are dismissed.
Author Bio
