Credit guarantee scheme
loan sanction without delay. o Studies in India up to Rs 10 lakhs o Studies abroad up to Rs 20 lakhs Loans (CGFSEL) has been established to guarantee education loans sanctioned by member banks (for a nominal fee to be paid by the member banks every year to keep the guarantee afloat). Corpus contribution to the fund shall be made upfront by the settler – that is, the government of India – on an annual basis. In case of default and invocation of claim, the Fund shall settle the claims of the lending institution after due diligence and the latter shall be paid on claims filed by them to the extent of 75 per cent of the loan amount.
Education loans for higher studies in India as well as abroad have not had the desired growth amongst Indian students for various reasons, chief among them being banks’ tedious procedural wrangles and delays, thereby holding up their admissions to the preferred institutions.
In order to bring in simplified norms of lending coupled with stricter monitoring of uncertified educational institutes, the government of India has brought out a notification (dated 16.09.2015) to establish Credit Guarantee Fund Scheme for Education Loans (CGFSEL). Banks are expected to increase their loan volume and numbers in extending education loans to needy students for pursuing further studies in India and abroad.
Salient features of the scheme are briefly explained here: Loan limit: The maximum loan allowed is Rs 7.50 lakhs without any collateral security and third-party guarantee. Rate of interest: The education loans to be covered under this fund shall attract loan interest @ 2% above the base rate of the banks. Margin: For loans up to Rs 4 lakhs: nil; for loans above Rs 4 lakhs: 5 per cent for studies in India and 15 per cent for studies abroad Guarantee: National Credit Guarantee Trustee Company ( NCGTC) undertakes to provide guarantee against default in repayment of educational loans up to Rs 7.50 lakhs extended by the lending institution. However, the guarantee is available only against educational loans on which the requisite guarantee fee has been paid by the lending institution from time to time. Also, the fund shall provide guarantee cover to the extent of 75 per cent of the amount in default.