Low CIBIL Score of a co-borrower cannot be a reason for denial of an education loan: Kerala High Court

The Kerala High Court upheld that the low CIBIL Score of a co-borrower cannot be a reason for the denial of an education loan through THE HONOURABLE MR.JUSTICE N.NAGARESH in the case of Kiran David v. SBI (WP(C) NO. 3646 OF 2022) 


The petitioners were aggrieved by the denial of an education loan. The petitioner wanted to study Post Graduate Diploma in Management and thus, submitted an application for an education loan of ₹7,30,000/- to the 2nd respondent-Manager of State Bank of India. The petitioner had submitted all documents required by the Bank in support of the application. The Bank, however, rejected the loan application submitted by the petitioner. 

The 2nd respondent rejected the application for an education loan for the reason that the CIBIL score of the co-applicant is not up to the mark. The petitioner challenged such communication and sought to direct the 2nd respondent to process his loan application.

According to the petitioners, the Reserve Bank of India has confirmed that an education loan is a  futuristic loan and that the goal of educational assistance is to provide financial support from the banking system to deserving/meritorious students pursuing higher education in India and abroad. The rejection of the petitioners’ loan application goes against the mandate given by the Reserve Bank of India through its various Circulars.


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

It was held that when banks disburse loans as priority sector loans, the eligibility criteria set for sanction of such loans must have a nexus with the goal sought. Nationalized and Scheduled Banks will not be justified in imposing conditions on the sanctioning of such priority sector loans that undermine the very purpose of such loans.

The Court Bench relied on the decision of Pranav S.R. v. SBI, [2020 KHC 4695], which 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.

In light of the foregoing, the writ petition was allowed. The High Court ordered the respondents to reconsider the loan applications, disregarding any co-obligants’ low credit scores, and to sanction and disburse the eligible loan amount.

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