If you are stuck in such a situation, here is what to do.

Mr. Rohan Mehra, a promising student from a modest background in the city of Nagpur, secured admission to a prestigious master’s program overseas. To fund his education, he required a substantial loan of approximately 40 lakhs. However, his family, living in a rented home, possessed no property to offer as collateral. His father, a factory worker, was nearing retirement, and the family’s finances were managed by Rohan and his elder brother, Mr. Sameer Mehra.

Rohan planned to apply for a non-collateral loan with his brother Sameer as the co-applicant. The primary challenge arose from Sameer’s employment situation. He worked as a manager at a friend’s small enterprise, “Apex Trading Co.” While he received his salary regularly via bank transfer, he did not have formal documentation like an official offer letter or monthly salary slips. This lack of formal proof of income led to rejections from several banks, causing significant distress and jeopardizing Rohan’s academic future.

Advice in such cases

Facing such a situation can be daunting, but there are structured ways to approach the problem and strengthen your loan application.

• Explore NBFCs and FinTech Lenders: Many Non-Banking Financial Companies (NBFCs) and modern FinTech platforms specialize in non-collateral education loans for studying abroad. Their assessment criteria can sometimes be more flexible than traditional public and private sector banks.
• Strengthen the Co-Applicant’s Profile: Even without salary slips, a strong financial profile can be built for the co-applicant. This is the most critical step in this scenario.
• Focus on Applicant’s Profile: Highlight your strong academic record, the ranking and reputation of the foreign university, and the future earning potential of the chosen course. A well-presented statement of purpose can also make a difference.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Applicable Sections of Law

While securing a loan is a civil and contractual matter, understanding the legal framework is crucial. The process is primarily governed by banking regulations and contract law, not criminal codes. However, any misrepresentation can attract provisions of criminal law.

• Indian Contract Act, 1872: A loan agreement is a contract. Its validity depends on the principles laid out in this Act. The terms and conditions, interest rates, and repayment schedule are all governed by this law.
• Banking Regulation Act, 1949: This Act, along with guidelines from the Reserve Bank of India (RBI), governs how banks operate. RBI issues circulars on priority sector lending, which includes education loans, often encouraging banks to provide such loans with specific terms.
• Consumer Protection Act, 2019: If a bank or NBFC engages in unfair trade practices or provides deficient service (e.g., unreasonable delays, arbitrary rejection without cause), you can file a complaint under this Act.
• Bharatiya Nyaya Sanhita (BNS): While the loan application process is civil, if the bank suspects that forged documents or deliberately false information has been submitted to induce them to grant a loan, it can lead to a criminal complaint for cheating under the provisions of the BNS. Therefore, all information provided must be accurate.

If you are the complainant

If you believe your loan application has been unfairly rejected or there has been an inordinate delay, you are the complainant. Here are the steps to follow:

• Grievance Redressal: First, file a formal complaint with the bank’s internal grievance redressal officer. Document the complaint and retain a copy of the acknowledgment.
• Escalate to Nodal Officer: If you do not receive a satisfactory response within 30 days, escalate the matter to the bank’s Nodal Officer or Principal Nodal Officer.
• Banking Ombudsman: Your next step is to file a complaint with the RBI’s Banking Ombudsman. This is a free and effective mechanism for resolving disputes with banks.
• Consumer Forum: You can also file a case in the District Consumer Disputes Redressal Commission for “deficiency in service” by the bank.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

If you are the victim

Feeling like a victim of rigid and non-transparent banking policies is common in these situations. It’s important to act strategically, not emotionally.

• Document Everything: Maintain a file of all communications with the bank, including application forms, emails, and names of officials you have spoken to.
• Request Reasons in Writing: If your loan is rejected, formally request the bank to provide the reason for rejection in writing. This is crucial for any future appeal or complaint.
• Review Your Application: Objectively review your application for any gaps. Perhaps supplementary documents could strengthen your case.
• Explore Alternatives: Do not be disheartened by one or two rejections. Systematically apply to other banks, NBFCs, and financial institutions that have a track record of approving such loans.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

How the police behave in such cases

In a standard education loan application process, the police have no role to play. This is a purely civil matter between an applicant and a financial institution. Police intervention would only occur if the bank files a criminal complaint alleging a cognizable offence. This typically happens only in cases of perceived fraud, such as the submission of forged academic certificates, fake identity documents, or fabricated income proofs with the intent to deceive the bank. As long as all your submitted documents are genuine and the information is truthful, you will not have any interaction with the police.

FAQs people normally have

• Can I get an education loan of up to 40 lakhs without collateral?
• Yes, several banks and NBFCs offer collateral-free education loans, often up to 50 lakhs or more for top-tier universities abroad, based on the applicant’s academic profile and the co-applicant’s financial stability.
• What can I do if my co-applicant does not have formal salary slips?
• You can substantiate their income using alternative documents like bank statements showing regular salary credits, filed Income Tax Returns (ITRs) for the last 2-3 years, and an affidavit or certificate from their employer confirming their employment and income.
• What are my options if a public sector bank rejects my loan?
• If a public sector bank rejects your application, you should apply to private banks and specialized NBFCs. Their credit appraisal methods are often different and more accommodating for unique profiles.
• How important is the CIBIL/credit score for the applicant and co-applicant?
• The CIBIL score is very important, especially for the co-applicant. A score above 750 is generally considered good. The applicant, being a student, may not have a credit history, which is usually acceptable.

What evidence is required?

To build a strong case for a loan application, especially one with an informally employed co-applicant, comprehensive documentation is key:

• For the Student Applicant: KYC documents (Aadhaar, PAN), passport, admission letter from the university, estimate of educational expenses (provided by the university), academic mark sheets and certificates, and any standardized test scores (GRE, GMAT, IELTS, etc.).
• For the Co-applicant with Informal Income:
  • KYC documents (Aadhaar, PAN).
  • Bank account statements for the last 12 months showing consistent salary credits.
  • Filed Income Tax Returns (ITR) for the last 2-3 years, along with computation of income. This is often the most crucial document.
  • An affidavit from the co-applicant declaring their income source and amount.
  • A formal certificate from the employer (on the company’s letterhead, if available) stating the co-applicant’s designation, tenure, and monthly or annual salary.
  • If possible, the business registration documents and GST returns of the employer’s firm to establish its legitimacy.

How long will the investigation take?

The loan application process is not an “investigation” but a “processing and verification” procedure. The time taken can vary significantly:

• Standard Processing Time: For domestic education loans, banks may take 15-20 days. For loans to study abroad, the process can take anywhere from 20 days to over a month due to more detailed verification.
• Factors Causing Delays: Incomplete documentation is the most common reason for delay. Verifying a co-applicant’s informal income may also require additional time as the bank might conduct a field visit or seek more supporting documents. It is advisable to apply well in advance of your fee payment deadlines.

Advocate Sudhir Rao, Supreme Court of India