Can low CIBIL Score of a co-borrower be a reason for denial of an education loan? Ker HC deciphers

Kerala High Court: In a case wherein, due to low CIBIL Score education loan was denied, N. Nagaresh, J., directed for reconsideration of loan applications, disregarding the low Credit Score of the co-obligants.

Petitioners were aggrieved by the denial of the education loan in the present case. The 2nd respondent had rejected the application for an education loan for the reason that the CIBIL Score of the co-applicant was not up to the mark.

On being aggrieved with the above, the petitioner approached the Court.

Petitioner cited the decision of this Court in Pranav S.R. v. SBI, [2020 KHC 4695], wherein it was held that unsatisfactory credit scores of the parents of the petitioner cannot be a ground to reject an educational loan application because the repayment capacity of the petitioner after his education should be the deciding factor. Therefore, the respondents are compellable to sanction and disburse the educational loan applied for by the petitioners.

Analysis and Decision

High Court expressed that, in the exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, the Reserve Bank of India, in public interest, has issued Reserve Bank of India (Priority Sector Lending- Targets and Classification) Directions, 2020. Direction 4 contained therein categorises Education as a priority sector. Direction 11 states that Loans to individuals for educational purposes, including vocational courses, not exceeding ₹20 lakhs will be considered as eligible for priority sector classification.

Bench stated that, this Court in the decision of Pranav S.R. v. SBI, [2020 KHC 4695], has held that for educational loans, the repayment possibilities are to be decided not on the financial position of the parents but solely on the projected future earnings of the students on employment after education.

Hence, in the present matter, Court found no reason to take any different view and allowed the petitions.

Lastly, the High Court directed the respondents to reconsider the loan applications, disregarding the low Credit Score of the co-obligants, if any, and sanction and disburse the eligible loan amount.[Kiran David v. SBI, 2022 SCC OnLine Ker 1193, decided on 2-3-2022]


Advocates before the Court:

For the Petitioner:

MANOJ RAMASWAMY

         JOLIMA GEORGE

         JISHA SASI

         C.B. SABEELA

         APARNA G.

         CHINNU ROSE MARY THOMAS

For the Respondents:

JAWAHAR JOSE

         CISSY MATHEWS

         EDWIN JOSEPH

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