Banking
Damodaran Committee: Report does not address key problems faced by students seeking loans

The RBI-appointed committee does not say anything about the obstacles in the documentation process that prevents students from availing the loans

The Damodaran Committee on bank customer services has failed to address some key issues on education loans, like the absence of an authority to issue income certificates that are required to be produced to avail of interest subsidy benefit.

The committee has in its report that was released by the Reserve Bank of India (RBI) on Wednesday, said that the banks should ensure through the government subsidy or insurance facility, that the educational loans are properly priced, so no bright student is denied an educational loan to pursue higher studies. "The criteria for giving such loans should be well publicised through websites or advertisements to ensure transparency and non-discrimination in sanction of such loans."

Experts say that while it is good that the committee has advised banks to make the scheme more student-friendly and create awareness about the scheme, it has failed to point out the obstacles that are preventing students from taking advantage of the facilities like interest subsidy as they are unable to show an income certificate in the absence of the issuing authority. Overall, much was expected from the committee with regard to documentation and the repayment hassles students face over the loans.

Moneylife has reported that as many as 28 states and union territories have yet to designate the income certificate issuing authority, nearly a year after the central government finalised a scheme to provide interest subsidy on education loans for students from economically weaker sections. In the absence of an authority to issue the income certificates, students from several states are finding it difficult to avail of the interest subsidy on education loans offered by banks. (Read, "Students in 28 states fail to get interest subsidy on education loans")

According to the ministry, under the scheme formulated by the Indian Banks Association (IBA), full interest subsidy is to be provided during the period of moratorium on education loan for students for families with an annual income of less than Rs4.5 lakh.

The Damodaran Committee said in its report that it had talked to students on the scheme. "The committee received feedback that though the banks say they are liberal with the educational loan facility, the same has become very difficult as the banks have made the norms very stringent for obtaining such loans. In the meetings, students expressed a desire that there should be a non-discriminatory and transparent policy for giving educational loans. Students should have the information about eligibility on the website and also by way of advertisements, so that ineligible students do not waste time, effort and money in seeking loans from banks."

About students from rural areas, the committee said, "Feedback from rural students indicated that preference for high-end professional studies was not benefiting the average student from a rural area to get a loan to pursue higher studies." The report recommended that "the board approved policy for educational loans should indicate the minimum percentage in value or number of such loans which will be disbursed to students from rural areas."

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COMMENTS

sudindra

6 years ago

In one of the seminar which I have attended, the expert shared the real truth that the person who can get vehicle loan will be rate of interest around 8 to 10%, but the student who seeking educational loan has to bear the interest rate around 14 to 18%.
Government has to initiate the proper policy, only committee recommendation is not going to be useful. Hope near future the Damodaran committee recommendation will be implemented soon.
Regards,

HSBC Bank ignores RBI norms, has different rules for first holder and second holder in a joint account

The UK-based bank says the zero-balance facility applies only to the original account holder, but not to the second person when the individual account is converted into a joint account

If you have a zero-balance salary account with a foreign bank and want to convert it into a joint account with your spouse, you might want to think again before you do it. The joint account-holders will have to maintain a minimum balance in the account, as far as HSBC Bank is concerned.

Pune-based professor Anil Agashe and his wife discovered this strange bank norm when they applied to convert Mrs Agashe's salary account at HSBC Bank's Law College branch, into a joint account, in 2004. Mrs Agashe is an advisor at Max New York Life and her commission payments were regularly credited to her account, which was a zero-balance account that she opened in 2002.

When the Agashes approached HSBC Bank, the account was converted into a joint account, and no questions were asked. But subsequently, the bank also upgraded the account to a category that requires a minimum balance of Rs3 lakh, without asking either of the account holders.

When the Agashes discovered this 'upgrade' later, they complained to the bank and managed to convert it to a 'normal' savings account. But the minimum balance required in this case was Rs75,000-and the couple was required to submit an application! The zero-balance facility did not apply for this account. "My argument is, if we had not applied for an upgrade, why should we apply for the downgrade (to Rs75,000)?" asks Mr Agashe.

Again, Mr Agashe informed the bank that the account was originally a zero-balance account. Only then did HSBC inform the account holders that the zero-balance facility was available to the first account holder and the joint account now required a minimum balance of Rs75,000.

Talking to Moneylife, Professor Agashe expressed his surprise saying, "How can you have two different rules for one account? If they (the bank) knew it was a salary account, why did they change it to a joint account in the first place?"

"I even asked them to make my wife the authorised signatory and give her all the rights to operate the account, with my name added on (as a nominee), but no (signing) authority for me. But the bank didn't listen," says Mr Agashe.

The Agashes met the bank's officer to enquire about the Reserve Bank of India (RBI) guidelines on this issue. "When I told the officer that the RBI does not make such a distinction, he said that HSBC has its own rules! I even told him that his (HSBC Bank's) rules could not be at variance with RBI guidelines. The officer insisted that 'HSBC is a foreign bank and therefore we can make our own rules irrespective of what the RBI says'," said Mr Agashe.

When Moneylife contacted HSBC Bank, the spokesperson refused to comment, saying, "We don't comment on client's account details due to security reasons, and we will answer the queries of the concerned account holder."

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COMMENTS

Ravi

6 years ago

Hi Money LIfe team,

Every bank, barring the PSU banks, have a higher minimum balance rule, and other onerous conditions. The case example may be unusual but if it does not violate any RBI guidelines (and you should be able to state it if this is indeed the case), I don't see this is a big issue.

Ravi

Prakash

6 years ago

Hi,

I have had somewhat similar experience with Axis Bank's Priority Account. A written request was submitted in 2009 to the bank to change the address for joint account with my wife. This year both of our debit cards expired. I received my debit card and PIN BUT my wife's debit card and PIN were not received. On inquiring with the branch I was told that it had returned to them by the courier. They had sent my wife's debit card and pin on my old address. When I questioned this, they said that you never submitted Change of Address for the Joint Holder. It was a ridiculous answer and explanation.

REPLY

Ravi

In Reply to Prakash 6 years ago

Address is a critical piece of informatin and any updates should be done independently for the joint account holders. A lot of fraud occurs due to wrong address or wrong email id.

Was the update done?

Prakash

In Reply to Ravi 6 years ago

If you are indeed from Axis Bank, let me mention another so called feature of Axis Bank's Priority Account. It entices customers by promising invitations to entertainment events per year, but I have not been invited for a full year. Then when I complained I was invited once and then again there has been no invitation since almost over a year. Another false promise to gift a "Diary" exclusively for Priority Account holders. I HAVE NOT RECEIVED IT FOR 2011 AND IT'S AUGUST. Not only that, but it's Import Division is in perpetual habit of loosing submitted documents and then demanding the copies from customers with threatning letters. I think it would not be a bad idea to pull up the bank for these wrong doings.

Prakash

In Reply to Ravi 6 years ago

You quite obviously seem to be from Axis Bank. The letter clearly stated that the address change was for THE ACCOUNT AND NOT JUST FOR THE FIRST HOLDER. I have been verbally assured by the RM that the updation is done, but I doubt very much.

Ravi

In Reply to Prakash 6 years ago

You guess wrong.

I am also a Priority customer and recently became a joint a/c holder which was a single a/c held by my wife. I had to provide address proof.

I suggest you work with the RM or change your bank. Don't expect real service from these banks. The RM's don't know much about banking and you need to follow up directly

Experts concerned over new draft law on microfinance sector

Bringing MFIs under the regulation of the Reserve Bank of India is questionable as it is not equipped with any protection mechanism and also overlooks consumer protection, experts say

The decision to bring the microfinance sector under the regulation of the Reserve Bank of India (RBI) has raised concerns among industry experts, who feel that the draft microfinance bill ignores safeguard mechanisms and consumer protection.

According to the draft of the Microfinance Institutions (Development and Regulation) Bill 2011 adopted by the government on 6th June, the RBI will regulate the Indian microfinance sector. In the new bill, all the microfinance institutions (MFIs) including non-banking finance companies (NBFCs), before commencing their businesses have to register with the RBI.

Ramesh Arunachalam, who has authored a recently released compendium on the history and growth of the industry, told Moneylife, "The proposed draft micro-finance bill is very welcome as the RBI is the legitimate regulator of the larger financial sector. From that perspective I am very happy and have argued the same in my recently released book. However, I am concerned that the bill, which leaves regulation of several hundred MFIs to the RBI, does so without necessary safeguard mechanisms. A second concern in the bill is that it does not look at consumer protection and/or consumer redressal in any significant manner." Mr Arunachalam's book is title "The Journey of Indian Microfinance: Lessons for the Future".

Mr Arunachalam said, "The department of non-bank supervision (DNBS), at the RBI, was a mute spectator to what happened between April 2008 and March 2010 when top five Andhra Pradesh headquartered NBFCs, MFIs, filing papers with DNBS, added 9.59 million clients and increased their gross loan portfolio by $2 billion. This is equivalent to each of those five NBFCs and MFIs, adding a gross loan portfolio of Rs78.55 crore per month, which continued for two years. It is important to note that the department of non-bank supervision is supposed to supervise every NBFC that has a loan portfolio of over Rs100 crore closely and each of these five MFIs were adding almost 78% of that threshold value (of Rs100 crore portfolio) every month for the two years. This is a huge task by any standards. Clearly, these are the trends that should have grabbed the attention of anyone, let alone the regulators/supervisors but, for some reason, they did not."

Critics point to a few worrisome provisions in the Bill, like the overlap between NBFCs and MFIs, which continues in this Bill. "Regrettably, the overlap between NBFCs and MFIs remains under the Bill. It would be most illogical to have a company carrying out microfinance business being regulated both as an NBFC and as an MFI. However, clause 11 (3) and (4) clearly suggest that such overlap will continue-which is a regrettable waste of regulatory attention. In fact, the Bill mandates that an MFI that becomes systematically important (based on a number of borrowers-the number to be notified by the RBI) will have to convert itself into a company. Once it converts, it obviously becomes an NBFC also," writes Vinod Kothari, on the website microfinancefocus.com.

The Bill has also mentioned the concept of 'thrift' services, which is defined in clause 2 (p) as collection of time deposits. "This seems to suggest that the RBI is inclined to permit MFIs to accept deposits too-a long-felt need. There is a mention in the marginal notes below section 14 about thrift services, but it seems that the provision actually fell through, somewhere along the way, as there is no substantive provision in the law about thrift acceptance," Mr Kothari stated.

Mr Arunachalam added, "We certainly require a microfinance law to provide legitimacy to the microfinance sector. Rather than being a paper tiger, the Bill should have the teeth and a mechanism to ensure orderly growth of the sector and for this the most critical aspect is to look at the supervisory capacity of the RBI and evaluate it to see what needs to be done to ensure ground level implementation."

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