Introduction to Loans - A Guide to Loan Basics

INTRODUCTION TO LOAN
Loan is a method of lending under which bank gives credit to a
borrower for a fixed period and for a specific purpose. Many a time a
borrower needs funds for fixed assets or non-repetitive type of activities
and thus, seeks money from the bank which is withdrawn in one lump
sum. If the borrower needs again funds for such purpose, he has to
negotiate with the bank of a loan again or to get his existing loan
renewed. The loan amount is normally repaid in installments. Loans may
be short term, medium term or long term. Long Term loans are generally
taken for meeting the capital investment requirements. Such loans are
called “Term Loans”. When a loan is meant for meeting both fixed
capital and working capital requirements of borrower, it is called a
composite loan.
A loan is the purchase of the present use of money with the
promise to repay the amount in the future according to a pre-arranged
schedule and at a specified rate of interest. Loan contracts formally spell
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out the terms and obligations between the lender and borrower. Loans are
by far the most common type of debt financing used by small businesses.
Loans can be classified as long-term (with a maturity longer than one
year), short-term (with a maturity shorter than two years), or a credit line
(for more immediate borrowing needs). They can be endorsed by co-
signers, guaranteed by the government, or secured by collateral—such as
real estate, accounts receivable, inventory, savings, life insurance, stocks
and bonds, or the item purchased with the loan. The interest rate charged
on the borrowed funds reflects the level of risk that the lender undertakes
by providing the money. For example, a lender might charge a start up
company a higher interest rate than it would a company that had shown a
profit for several years.
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ADVANTAGES OF LOAN SYSTEM
 Financial discipline on the borrower: As the time of repayment
of the loans or its installments is fixed in advance, this system
ensures a greater degree of self-discipline on the borrower as
compared to the cash credit system.
 Periodic review of loan account: Whenever any loan is granted or
its renewal is sanctioned the borrower gets an opportunity of
automatically reviewing the loan account. Unsatisfactorily the loan
accounts may be discontinued at the discretion of the banker.
 Profitability: The system is comparatively simple. Interest accrues
to the bank on the entire amount lent to a customer.
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DISADVANTAGES OF LOAN SYSTEM
 Every time a loan is required, it is to be negotiated with the
banker. To avoid it, borrower may borrow in excess of their exact
requirements to provide for any contingency.
 Banks have no control over the use of funds borrowed by the
customer. However, banks insists on hypothecation of the assets/
vehicles purchased with loan amount.
 Through the loans are for fixed period, but in practice they roll
over. i.e. they are renewed frequently.
 Loan documentation is more comprehensive as compared to each
credit system.
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CHARACTERISTICS OF LOAN
1. Time to maturity: Time to maturity describes the length of the
loan contract. Loans are classified according to their maturity into
short-term debt, intermediate-term debt, and long-term debt.
Revolving credit and perpetual debt have no fixed date for
retirement. Banks provide revolving credit through extension of a
line of credit. Brokerage firms supply margin credit for qualified
customers on certain securities. In these cases, the borrower
constantly turns over the line of credit by paying it down and re-
borrowing the funds when needed. A perpetual loan requires only
regular interest payments. The borrower, who usually issued such
debt through a registered offering, determines the timing of the
debt retirement.
2. Repayment Schedules: Payments may be required at the end of
the contract or at set intervals, usually on a monthly or semi-annual
basis. The payment is generally comprised of two parts: a portion
of the outstanding principal and the interest costs. With the passage
of time, the principal amount of the loan is amortized, or repaid
little by little until it is completely retired. As the principal balance
diminishes, the interest on the remaining balance also declines.
Interest-only loans do not pay down the principal. The borrower
pays interest on the principal loan amount and is expected to retire
the principal at the end of the contract through a balloon payment
or through refinancing.
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3. Interest: Interest is the cost of borrowing money. The interest rate
charged by lending institutions must be sufficient to cover
operating costs, administrative costs, and an acceptable rate of
return. Interest rates may be fixed for the term of the loan, or
adjusted to reflect changing market conditions. A credit contract
may adjust rates daily, annually, or at intervals of 3, 5, and 10
years. Floating rates are tied to some market index and are adjusted
regularly.
4. Security: Assets pledged as security against loan loss are known as
collateral. Credit backed by collateral is secured. In many cases,
the asset purchased by the loan often serves as the only collateral.
In other cases the borrower puts other assets, including cash, aside
as collateral. Real estate or land collateralize mortgages.
Unsecured debt relies on the earning power of the borrower.
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AN OVERVIEW OF A LOAN PROCESS
Organize Your Documents
A properly documented loan application makes your loan process go
smoothly. This checklist will help you gather your paperwork:
1. Complete and sign the residential loan application, Form 1003, and
the attached loan info sheet, credit authorization and fair lending
notice. Page 4 of the application is a continuation page in case you
need additional space for your assets or liabilities. If you make a
mistake while filling out the application cross it out, and make a
change. Do NOT use whiteout.
2. If you are salaried: provide W-2's for the previous two years and
one month of pays tubs. If you are self-employed, provide tax
returns for the previous two years, including all schedules, and a
YTD profit and loss statement. If you own rental property, provide
recent rental agreements and tax returns for the previous two years,
including all schedules.
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3. To speed up the approval process, provide bank statements for the
most recent three months, and recent statements for stock and
mutual funds.
4. If you are requesting a cash out refinance, provide a letter
explaining how you will use the refinance proceeds.
5. If applicable, provide a copy of your divorce decree and settlement
agreement.
6. If you are NOT a US citizen, provide a copy of your green card
(front & back). If you are NOT a permanent resident provide a
copy of your H-1 or L-1 visa.
7. If any borrower has filed bankruptcy, provide the Discharge
Notice, Filing and Schedule of Creditors.
8. If you are applying for a home equity line of credit or loan (second
loan), also include your first mortgage note. (This should be with
your closing loan documents.)
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Get Qualified
Getting qualified before you apply for a loan can help you understand
how much you can borrow.
When buying a home, you may be pre-qualified or pre-approved. You
can be pre-qualified over the phone or on the Internet in a few
minutes. Pre-qualification is not as useful as pre-approval. Pre-
approval requires a more rigorous process, including verification of
your credit, income, assets and liabilities. It is highly recommended
that you be pre-approved before you start looking for a home.
Being Pre-approved will:
1. Inform you of your maximum affordable home value, and save you
from previewing properties outside your price range.
2. Put you in a stronger negotiating position with the seller, because
the seller will know your loan is pre-approved.
3. Help you close quickly, since your loan is pre-approved.
Shop Loan Programs and Rates
What loan program is best for your situation? Lenders offer many
different loan options:
1. Think about how long you plan to keep the loan. If you plan to sell
your home in a few years, you may want to consider an adjustable
rate or balloon loan. If you plan to keep your home for a longer
time, you may want to consider a fixed rate loan.
2. Understand the relationship between rates and points. Points are
considered prepaid interest and may be tax deductible. Each point
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is equal to 1 percent of the loan. For example 1 point on a
$150,000 loan is $1,500. The more points you pay, the lower your
rate.
3. Compare different loan programs. With so many programs to
choose from, it's hard to figure out which program is best for you.
Consult an experienced loan officer who can help you find a loan
program that best fits your short- and long-term plans.
Obtain Loan Approval
Once your loan application has been received, we will start the loan
approval process immediately. This involves verifying your:
• Credit history
• Employment history
• Assets including your bank accounts, stocks, mutual fund and
retirement accounts
• Property value
• Based on your specific situation, additional documents or
verifications may be required.
To improve your chances of getting a loan approval:
• Fill out the loan application completely.
• Respond promptly to any requests for additional documents. This
is especially critical if your rate is locked or if you plan to close by
a certain date.
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• Do not make any major purchases. Do not buy a car, furniture or
another house till your loan is closed.
• Anything that causes your debts to increase might have an adverse
affect on your current application.
• Do not move money into your bank accounts unless it can be
traced. If you are receiving money from friends, family or other
relatives, please contact us.
• Do not go out of town around the closing date. If you do plan to be
out of town when your loan is expected to close, you may sign a
power of attorney, to authorize another individual to sign on your
behalf.
• Notify your loan officer before applying for any other credit,
including credit cards, personal loans or even with another
mortgage company. Some loan programs have strict guidelines
regarding your credit score. Credit inquiries may lower your credit
score and may have an adverse affect on your loan approval.
Close the Loan
After your loan is approved, you will be required to sign the final loan
documents. This will normally take place in the presence of a
notary public. Be prepared to:
• Bring a cashier check for your down payment and closing costs if
required. Personal checks are normally NOT accepted.
• Review the final loan documents. Make sure that the interest rate
and loan terms are what you were promised. Also, verify the
accuracy of the name and address on the loan documents.
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• Sign the loan documents. The notary will require that you have
your picture ID with you. Some lenders also require to see your
Social Security card.
Your loan will normally close shortly after you have signed the loan
documents. On refinance and home equity loan transactions,
federal law requires that you have three days to review the
documents before your loan transaction can close. Purchase
transactions do not have a three day rescission period.
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INTRODUCTION TO EDUCATION LOAN
Education is essence of life. Without education one is like a body
without soul. But unfortunately, rising cost of higher education makes it
difficult, at times, for many brilliant brains to pursue careers of their own
choice.
Education is central to the human resources. Development and
empowerment in any country. National and state level policies are framed
to ensure that this basic need of the population is meet through
appropriate public and private sector initiatives.
"Education loan" means a loan made pursuant to the program
which is made by the authority or by an eligible financial institutions to a
student or to a parent of a student, or both, to finance a student cost of
attendance at an institution of higher education, and which may be funded
with the proceeds of a qualified student loan bond.
While government endeavors to provide primary education to all on a
universal basis, higher education is progressively moving into the domain
of private sector.
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With a gradual reduction in government subsidies higher
education is getting more and more costly and hence the need for
institutional funding in this area become necessary.
The scope of education has widen both in India and abroad covering new
courses in diversified areas. Development of human capital is a national
priority and it should be the endeavor of all that no deserving student is
denied opportunity to pursue higher education for want of financial
support. Loan for education should be seen as an investment for
economic development and prosperity knowledge and information would
be the driving force for economic growth in the coming years.
Determine the effectiveness and efficiency of student support
enforcement and student welfare programs in serving their targets
population, identify opportunities to better manage post secondary ,
vocational and adult education programs and deliver more effective
services.
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PURPOSE OF EDUCATION LOAN:
This is a scheme of choice for parent who wish to educate their
children in professional courses in India/Abroad and help them to get
graduation/post-graduation in any field of choice of the student.
Bank gives loan to students to partly meet their educational
expenses. The purpose of loan is to make available financial assistant to
the needy and deserving students of bright academic record. So as to
enable them to continue higher studies in India and abroad either in
diploma / graduation or post graduation level in arts, science, commerce,
management, medicine and engineering. And also to meet the cost of
education, covering tuition fees, exam fees, development fees, hostel fees,
books, instruments, etc.
Loans are given to students who are citizen of India. The student
should have a consistence good academic record and admission to an
approved educational institute for pursuing recognized courses.
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TAX BENEFIT ON EDUCATION LOAN
The first question that comes to people's minds when they take a loan is:
Will I get tax benefits on it?
Here is what you need to know when looking at the tax angle.
Who took the loan?
You will get the tax benefit on an education loan only if the loan is in
your name. You cannot claim the tax deduction if the loan is taken for
someone else, be it your spouse or children or even a sibling. Only the
person for whom the loan is valid will get the tax benefit.
So, if you take an education loan, you -- and not your parents or whoever
took the loan -- will get the tax benefit when you start repaying it.
The tax benefit
If you take an education loan, you can claim deduction under Section 80E
of the Income Tax Act. You will get a tax benefit on the interest you pay.
Initially, there was a limit on the tax benefit. The lesser of the two
amounts would be valid for deduction:
i. Total amount paid during the year (principal repaid and interest paid)
ii. Rs 40,000
Now, this had been done away with. The interest you pay will be
deducted from your income; there is no limit any more. It will reduce the
tax you have to pay.
No deduction, however, is now available for the principal repayment.
The good news: Interest can be deducted and there is no limit to this
amount.
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The bad news: The principal amount is no longer eligible for deduction.
Do remember, repayments on your education loan are NOT covered
under Section 80C. As mentioned above, they are covered under Section
80E of the Income Tax Act.
Take a look at What falls under Section 80C to see what is covered
under this section.
The time period
The deduction mentioned above will only be applicable when you start
repaying the loan.
These deductions are available upto eight years totally. You cannot claim
the deduction for more than eight years.
So, even if you have a repayment time frame of 10 years, try and repay
your loan within eight years. Unless, of course, the loan amount is too
high for you to afford a higher repayment amount every month.
Do note you cannot claim any tax deduction if your employer gives you a
loan. You get these tax benefits only if the loan is from a financial
institution, bank or approved charitable institution.
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TIPS: EDUCATIONAL LOAN
1.How do I plan my career?
2.Developing a Career Plan
3.How will a Career Goal Help Me?
4.Steps needed to select a school/college/institution?
5.How do I plan for the cost of my studies?
There are various steps in planning a career:
How do I plan my career?
1. If you can afford to use the services of a career guidance center, you should do
so, and use the opportunity of getting expert counseling when you are still in
secondary school. Even going otherwise is highly recommended. Career counselors
evaluate you on a personal basis, using different scientific tools, before coming to a
conclusion.
2. You need to develop a good career plan. You should think about the kind of
training, education and skills that you will need to achieve your career goals.
3. Assess your skills and interests. You need to be sure about what you will truly
enjoy doing, what are you good at, what your personality type is, and what values
you hold.
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4. You need to research areas of occupation. You need to find out about the nature
of the jobs that interest you, such as defense, manufacturing, management, etc.
Find out more about the job profiles, salaries and their trends, potential, and
anything else that can help them narrow down the focus.
5. Then you need to compare your skills and interests with the occupation that you
have selected. You should then go for a job or career that matches, or is very close
to, your skills, interests and personality.
6. After you have chosen the occupation, it is time to formulate a career goal. You
need to develop a plan to reach that goal.
7. Then you need to select a few colleges that will offer you the required degree or
training program that best meets your goal and financial needs.
Developing a Career Plan
With so many possibilities available, how does one make a wise decision? Once
you know the career path you want to follow, how do you get there? These are
some of the questions that your career plan should answer. Here are some tips that
will help students and parents to develop a career plan:
1. To find a satisfying career, develop career plans in line with your interests, skills
and personality. Pen down your interests and each of the things that you have
enjoyed during the course of your life, like social work, accounting, volunteering,
teaching, assisting parents in their businesses, part-time work or any other project
that you might have undertaken. Extensively evaluate your likes and dislikes. Write
down what you liked, what was more challenging in that particular activity, and
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ultimately what you learnt from it. Can you make that your long-term career? Make
a list of such activities that you have undertaken in the last couple of years.
2. Draw a list of skills that you possess and would like to develop to the fullest
extent possible. Your skills may include training, vocational courses, hobbies, etc.
that you might have undertaken over the years, and are really good at. Compare
your skills with interests. Are there any activities common to both the lists? If yes,
find out if any of those can be converted into a professional career. For example, if
you took tuitions and enjoyed teaching, then you should probably think of a career
in the educational field, as a teacher or a professor.
3. Find out the various types of career options available to you. Research careers,
as more often than not, you may not know the best occupations that may fit your
skills and interests. It is very important to actually find out whether the career you
are considering is really what you expect it to be, and whether it offers the long-
term prospects, salary and other benefits that you expect. The best way to find
about all these is to talk to people around you. Call up people in the industry, take
appointments, meet them personally and seek their advice.
4. Once you have decided about the career that you want to be in, then the next step
is to decide how to get there. Ask yourself: What special training do I require?
Which school, college or institute do I need to join? All these questions need to be
answered properly. List the top colleges you would like to attend, and start
preparing for their intrarends. Once you choose a career, think again, and talk to
senior and experienced people how to accomplish those goals.
How will a career goal help me?
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A career goal will help you focus on what you want to do for a living. This could
be a very specific job that you would like to do, e.g. being a doctor or a
managementconsultant.
Rather than limiting your future, a career goal will help you to discover
possibilities that you would not have thought of otherwise. There are several job
possibilities for any chosen career. For example, if you opt for advertising, you
may have options like client servicing, media planning, business development,
choreography, computer animation and graphics, production and directions,
copywriting.
A career goal will guide you in what to do in life, taking care of your interests,
skills, personality and job trends. Once you choose a career, think again, and talk to
senior and experienced people how to accomplish those goals.
What are the steps needed to select a school/college/institution?
The following are some of the steps that will help you choose better:
1.Clearlyestablishyourgoals and interests.
2. If you are clear about the career you want to get in, find out what kind of
education or training is required to excel in that field.
3. You need to find out about various schools/colleges/institutes conducting those
courses, and important factors like faculty, location, course offering, facilities,
distance from home, religious affiliation, area of study, campus environment, social
activities, etc.
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4. Rank the above characteristics according to your preferences and choices.
5. Make sure about the qualifying admission criteria for the required
college/institute, and find out more about the entrance and other exams that you
may have to pass to secure admission. Lots of books are available in the market
that provides you the institutes' past question papers, to help you master their
pattern and style. Prepare well before you appear for the exams.
6. Gather information about the schools from various sources like the Internet,
friends or by talking to industry people.
7. Request information from the college/institute about their admission dates, fees
and other related matter.
8. Apply on time to avoid later confusion and hassles. Try to keep a photocopy of
all forms sent to various colleges/institutes.
9. Apply to the top half a dozen colleges, in order to avoid disappointment.
How do I plan for the cost of my studies?
1. Firstly, you need to find out as much information as possible about the
college/institute that you plan to get into. Buy their prospectuses, and get details of
fee structure and other related costs.
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2. If the college/institute is not in your hometown, check for hostel accommodation
and mess facility, etc., as, ultimately, these costs will also be borne by you.
3. You can look out for scholarships and grants. Finding them in the Internet age
has become really easy. So do not forget to check for scholarship and grants on the
Internet before you decide on the loan amount. There are a lot of companies and
trusts that give scholarships and grants to deserving students.
4. Check with the college/institute about any financial loan facility and the
procedure for availing it. Usually, in such schemes, you are given a fixed period to
pay your fees.
5. Enquire with the institute if it has any tie-ups with banks or whether it assists
students in applying for educational loans. Most of the reputed colleges/institutes
have a tie-up with certain banks for educational loans. The main criterion for these
banks is confirmed admission. Hence, checking this out could be worthwhile.
6. Check with different banks, well before the results are announced, whether they
finance the course that you are interested in, and find out other things like interest
rates, loan amount, margin, documentation, etc. Most importantly, you need to find
out the processing time that the bank requires sanctioning the required loan
amount. This is important, as you have a fixed number of days to claim your
admission.
7. So shortlist a few banks, and keep the documentation ready.
8. One thing that has to be kept in mind is insurance. In India , banks usually
require a student to have his/her life insured for at least an amount equivalent to the
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loan amount. Hence, do not forget to take out a policy before applying for a loan.
9. Now you need to see how much you or your family can afford, or is willing, to
pay for your education. It is advisable that you take a loan only for the amount that
is really required, and not for the entire cost of your education. Hence, the issue
should be discussed with your family members.
10. After filling out the bank loan forms, it would be advisable to photocopy them,
fill up the photocopies, show them to the bank and get approval, before filling out
the final forms. This will help you avoid cancellations or corrections that may
unnecessarily delay the loan sanction period.
EDUCATION LOAN TO OFFER INSURANCE COVER
If you manage to get an education loan, you would also receive an
insurance cover with it. All banks are now going to offer a life insurance
policy for students at the time they disburse the education loan. The
insurance cover of offer will however be different with each one
negotiating a different cover with insurance companies.
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The cover, like the life policy for home loans, will be for at least the
value of the loan and the policy will have to be assigned in favour of the
bank. The issue was deliberated at finance minister P Chidambaram's
meeting with bank chiefs on Wednesday and Indian Banks Association
has been asked to incorporate a clause in the model education loan norms.
Yet another option being considered was to offer a convertible whole life
policy where the premiums are very low but there is an option to convert
it into a better policy with more benefits later
The Government wants the existing education loan scheme to be
modified to add on a life insurance cover on the student going in for an
education loan from a public sector bank. All public sector banks (PSBs)
may also be asked to introduce facility of online request for education
loans.
An insurance policy on the life of the student at the time of granting of
education loan is likely to result in benefits for both the bank as well as
the student.
On the benefits of insurance cover, official sources said that the bank
would be able to recover the loan amount from the insurance amount in
case of an unfortunate demise of the borrower.
For the student, a habit of taking insurance would be inculcated. A
student, who is once covered by life insurance, even after repaying the
bank loan, would be inclined to continue with the life insurance policy.
Union Bank already has a provision for an insurance policy in their
education loan scheme. To lessen the cost of premium, a convertible
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insurance policy (convertible into an endowment assurance policy for 5
years) could be accepted, says the scheme.
In cases where the parent/guardian cannot bear the premium cost, the
amount of premium during the period of education could be remitted by
the bank to LIC to the debit of loan account.
Guidelines
Indications are that the Finance Minister may ask the Indian Banks’
Association (IBA) to incorporate specific clauses for life insurance (on
the lines of the Union Bank’s scheme) in the model education loan
agreement circulated by it to banks for implementation.
The IBA may also be asked to provide broad guidelines to banks
regarding the material to be published in the loan forms about insurance
options available to students.
Meanwhile, PSBs may also be asked to provide facility of web-based
online request for education loans. A presentation is likely to be made by
Corporation Bank, which already offers such a facility
STATE BANK OF INDIA (SBI) SCHEME FOR EDUCATION
LOAN
HISTORY OF SBI
State Bank of India's (SBI) origin goes back to in the first decade of the
nineteenth century with the establishment of the Bank of Calcutta in Calcutta
on 2 June 1806. Three years later the bank was re-designed as the Bank of
Bengal on 2 January 1809. It was the first joint-stock bank of British India
sponsored by the Government of Bengal. Two other banks the Bank of
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Bombay on 15 April 1840 and the Bank of Madras on 1 April 1843 started its
operations. These three banks remained at the apex of modern banking in
India till their amalgamation as the Imperial Bank of India on 27 January
1921. This new bank took on the triple role of a commercial bank, a banker's
bank and a banker to the government. The Imperial Bank during its existence
recorded an impressive growth in terms of offices, reserves, deposits,
investments and advances, the increases in some cases amounting to more
than six-fold. The bank had acquired very good confidence among depositors
by its high standard of integrated operations. In 1951, when the first five year
plan was launched, the development of rural India was given high priority.
The commercial banks of the country including Imperial Bank of India had till
then confined their operations to the urban sector and were not equipped to
respond to the emergent needs of economic generation of the rural areas. In
order to serve the economy in general and the rural sector in particular, the An
act was accordingly passed in parliament in May 1955 and the State Bank of
India was constituted on 1 July 1955. Later, the State Bank of India
(Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India
to take over eight former State-associated banks as its subsidiaries (later
named Associates). SBI is the largest commercial bank in India in terms of
profits, assets, deposits, branches and employees. It has segregated its core
business operations as Treasury Operations, Corporate Banking Group,
National Banking Group, International Banking Group, Associates &
Subsidiaries, Asset Quality and Information Technology. The Bank's National
Banking Group (NBG) consists of four business groups viz., Personal
Banking, SME, Agricultural Banking and Government Banking. NBG has 14
administrative circles encompassing a vast network of 9177 branches, 4 sub-
offices, 12 exchange bureaus, 104 satellite offices and 679 extension counters,
to reach out to customers, even in the remotest corners of the country. Out of
the total branches, 809 are specialized branches. SBI plays a vital role in
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providing working capital and term finance to the Indian industry. Due to its
large network of branches, SBI has been able to garner a large chunk of
deposits from the rural sector. It is also a leader in the international banking
business. In 1998-99, SBI launched its Credit Card by having a joint venture
with GE Capital. In a short span of period, the bank was established very good
presence in the market. The Bank's Kisan Credit Card Scheme, introduced in
the same period, with inbuilt benefits of comprehensive credit assessment for
the whole year, cash disbursals and consumption credit, has become
increasingly popular. The Bank also launched its debit card viz. SBI Cash Plus
in the later period. Customers can use it to draw cash and do other transactions
at the ATMs and also use it at merchant establishments for paying their
shopping bills. This facility is extended to all SBI customers. In 1999-2000,
the bank launched 'SBI Gold Deposit Scheme' and became the first bank in
India to introduce such a product. The scheme aims at mobilising idle
domestic gold for productive purposes. SBI Life launched its first product
'Sanjeevan' on the 15 June 2001. SBI Life has introduced several Group
Insurance Schemes including coverage for housing loan borrowers and
deposits account holders. With the required approvals falling in place enabling
SBI branches to handle insurance business, SBI Life's Bancassurance products
are expected to get a big boost and also bring substantial non-interest income
to the bank's branches. It is the first private sector insurance company to make
profits and that too in just three years. In 2001-02, SBI launched new schemes
to increase the flow of credit to the agricultural sector viz., Kisan Gold Card,
Land Purchase scheme for small and marginal farmers and scheme for
financing purchase of Combine Harvesters. In 2002-03, SBI introduced Small
Business Credit Cards is aimed at small-scale industries, small business and
professionals and self-employed persons. During the year, a state-of-the-art
core Banking solution and an integrated Trade Finance solution were
customized for the bank's operations, which will provide 'anywhere banking'
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to its customers. In 2005-06, the bank had formed a joint venture with Tata
Consultancy Services Ltd. In October 2006, SBI has entered into an
arrangement with M/s Motilal Oswal Securities Pvt. Ltd. (MOSL) for
providing e-trading services to the bank's customers. SBI is the only bank in
India to be ranked among the top 100 banks in the world and also among the
top 20 banks in Asia in the annual survey by 'The Banker'. The Bank also
received two prestigious technology awards from The Banker Magazine in
2005 viz., Core Banking Solution of the year for scale, speed and complexity
of the programme, and Outsourcing Project of the year for the Integrated
Network Infrastructure project. The Bank was adjudged the Best Bank of the
Year 2005 by Business India. The Bank is actively involved in non-profit
activity called community services banking apart from its normal banking
activity. All the branches and administrative offices throughout the country
sponsor and participate in large number of welfare activities and social causes.
It reflects that the bank touches the lives of people anywhere in many ways
STATE BANK OF INDIA
A term loan granted to Indian Nationals for pursuing higher
education in India or abroad where admission has been secured.
Eligible Courses
All courses having employment prospects are eligible.
· Graduation courses/ Post graduation courses/ Professional courses
· Other courses approved by UGC/Government/AICTE etc.
Expenses considered for loan
· Fees payable to college/school/hostel
29

· Examination/Library/Laboratory fees
· Purchase of Books/Equipment/Instruments/Uniforms
· Caution Deposit/Building Fund/Refundable Deposit
· Travel Expenses/Passage money for studies abroad
· Purchase of computers considered necessary for completion of course
· Cost of a Two-wheeler upto Rs. 50,000/-
Any other expenses required to complete the course like study tours,
project work etc.
Amount of Loan
· For studies in India, maximum Rs. 10 lacs
· Studies abroad, maximum Rs. 20 lacs
Interest Rate
For loans upto Rs.4 lacs - 12.75% p.a. Floating
For loans above Rs.4 lacs - 13.75% p.a. Floating
Processing Fees
· No processing fee/ upfront charges
· Deposit of Rs. 5000/- for education loan for studies abroad which will
be adjusted in the margin money
Repayment Tenure
Repayment will commence one year after completion of course or 6
months after securing a job, whichever is earlier.
30

Place of
Study
Loan
Amount
Repayment Period
in Years
In India Up to Rs.7.5 lacs 5-7
Above Rs.7.5 lacs 5-10
Abroad Up to Rs.15 lacs 5-7
Above Rs.15 lacs 5-10
Security
Amount StudiesIn
India
Studies Abroad
Upto Rs 4 lacs No Security No Security
AboveRs.4 lacs to
Rs. 7.50 lacs
Suitable third
Party
Guarantee
Suitable third Party
Guarantee
Above Rs. 7.50
lacs to Rs. 10
lacs(India)/ Rs. 15
lacs(Abroad)
Tangible
Collateral
security for full
value of loan
Tangible Collateral
security of suitable value
of loan or suitable third
party guarantee.
Rs 15 lacs to Rs.
20 lacs
Tangible Collateral
security for full value of
loan
31

Margin
· For loans up to Rs.4.0 lacs : No Margin
· For loans above Rs.4.0 lacs:
. Studies in India: 5%
. Studies Abroad: 15%
Documentation Required
· Completed Education Loan Application Form.
· Mark sheets of last qualifying examination
· Proof of admission scholarship, studentship etc
· Schedule of expenses for the specified course
· 2 passport size photographs
· Borrower's Bank account statement for the last six months
· Income tax assessment order, of last 2 years
. Brief statement of assets and liabilities, of the Co-borrower
32

BANK OF BARODA (BOB) SCHEME FOR EDUCATION
LOAN
HISTORY
Bank of Baroda (BOB) was Incorporated in 1908 in the small town of Baroda by
the visionary Maharaja, Sir Sayajirao Gaekwad III. Alone with other banks BOB
was nationalised in 1969. The first branch of the Bank was opened in the city of
Ahmedabad in 1910 while that in the city of Bombay in 1919. The bank is
recognized as one of the largest providers of credit to domestic industries with a
well diversified credit portfolio. It has also been at the forefront of providing trade
related products such as export credit to Indian exporters. It provides lending,
banking, financing rehabilitation, treasury and investment management services to
consumers and to industries. It was the first to venture overseas. Bank plans to
march ahead in the E-Millennium with renewed focus on the triad of 'Technology,
People & Customer'. Its thrust for the future will be on Insurance, E-broking and
33

Retail Banking. International Debit Card project was luanched in 2002-03, in
affiliation with VISA. The project envisages insatllation of 500 ATMs in the next
financial year. Effective from 19th June,2002 the Benares State Bank was
integrated with the Bank. The Bank has introduced five retail lending products
they are Baroda Home Improvement loan, Baroda festival Loan, Baroda
Professional Loan, Baroda Eco-friendly Gas Kit Loan, Loan to individual for
subscribing to Public Issues of PSUs/Blue Chips companies, Advances against
Future Rent Receivables and Baroda Loan for Executive Development. In the year
2004-05 the bank has expanded its interconnected ATM network to cross 501,
spread over 180 centres in the country. The bank has also introduced 8AM to 8PM
banking at 101 branches and 24-Hour banking at 5 branches in the country. Further
the company has launched its new logo 'The Baroda Sun' in June 2005. The bank
will roll out 125 branches in 2005-06 and over 600 branches in the next year.
The bank has commissioned global data centre during the year 2006 and also given
inter-connectivity for over 1300 branches in the country.Another important
initiative taken by the bank in the year 2006 was commissioning of new
ATMs.The bank has commissioned 464 new ATMs across the country taking the
tally to 634. During 2006-07, as part of Branch Conslidation Exercise 22 branches
were merged with the Bank. The Bank opened 50 new branches during the year,
while 3 Extension counters were upgraded into full-fledged branches, 5 Extension
Counters were closed. As at March 2006-07, the Bank has a network of 2732
branches. The bank opened an offshore branch in Singapore and the Bank
operations in Hong Kong through its subsidiary with Restricted Bank License were
upgraded into a full service bank. Bank's 2 branches in Hongkong commenced full
service banking operations from April 2007. The Bank has also got approval for
opening branches/offices in Trinibad & Tobago, Ghana, Australia, Bahrain in the
near future. The Bank is planning to upgrade/expand its existing network in
countries like China, UK, Malayasia, South Africa, Tanzania, Kenya and
34

Botswana. During the year under review, the bank also took a major initiative of
unifying and integrating the entire Gujarat Operations by merging the erstwhile
Central Gujarat and South Gujarat Zones with North Gujarat Zone to form a single
entity with Headquarters at Ahmedabad.
BANK OF BARODA
Eligibility
Should be an Indian national Secured admission to professional/technical
courses through entrance test/selection process. Secured admission to
foreign university/ institution. No minimum qualifying marks.
Benefits
Very competitive rate of interest. Affordable terms and conditions. 1%
concession in interest if interest is paid during moratorium period.
Features
35

Simple interest is charged at quarterly rests during repayment
holiday/moratorium period. 1% interest concession is provided, if interest
is serviced during the study period, provided where repayment holiday is
specified for interest repayment under this scheme. No processing /
upfront charges. No margin/security for loans upto Rs.4/- lacs.
Documentation. Procedure And Form
D.P. note. Letter of co-obligation to be singed by borrowers/
parents/guardian/relative or friends. Other related documents securities
offered. (if applicable) Stamped declaration/ an affidavit confirming that
no loans are availed from other banks.
Rates and Fees
Upto Rs.4.00 lacs : TPLR
Above Rs.4.00 lacs : TPLR + 1%
Simple interest to be charged at quarterly rest during the repayment
holiday/Moratoriumperiod.
Penal interest @ 2% on overdue amount in the loan exceeding Rs.2 lacs.
1% interest concession be provided for loanees if the interest is serviced
during the study period when repayment holiday is specified for interest /
repayment under the scheme.
Documentation Charges
Upto Rs.25000/- Nil
36

Above Rs.25000/- & upto Rs.2 lacs Rs.100/-
Above Rs.2.00 lacs & upto Rs.5 lacs Rs.750/-
Above Rs.5.00 lacs Rs.1000/-
Processing/upfront Charges : Nil
Terms and condition
Course Eligible
a. Studies in India :
School education including plus 2 stage.
Graduation courses : All graduation courses.
Post Graduation courses : Masters & Ph.d.
Professional courses : Engineering , Medical, Agriculture,
Veterinary, Law, Dental, Management,
Computer, Ayurved, Homeopathy,
Physiotherapy.
Computer certificate courses of reputed institutes accredited to Dept. of
Electronics or institutes affiliated to university.
Courses like ICWA, CA, CFA, CS.
Courses conducted by IIM, IIT, IISc, XLRI, NIFT.
Courses offered in India by reputed foreign universities.
Evening courses of institutes approved by State/Central Govt./UGC/
Universities.
Other courses leading to diploma / degree etc. conducted by colleges /
universities approved by UGC / Govt. / AICTE / AIBMS / ICMR / ICAR.
Courses offered by National Institutes and other reputed private
institutions.
b. Studies abroad :
37

Graduation : For job oriented professional/technical courses
offered by reputed universities.
Post graduation : MCA, MBA, MS.
Courses conducted by CIMA - London, CPA in USA.
Expenses considered for loan :
Fee payable to college / school / hostel. Examination / Library /
Laboratory fee. Purchase of books / equipments / instruments / uniforms.
Caution deposit / building fund / refundable deposit supported by
Institution bills / receipts.
Travel expenses / passage money for studies abroad.
Purchase of computers - essential for completion of the course.
Any other expense required to complete the course - like study tours,
project work, thesis, etc.
Quantam of finance:
Need based finance subject to repaying capacity of the parents / students
with margin upto the following ceilings.
Studies in India - Maximum Rs. 7.50 lacs
Studies abroad - Maximum Rs.15.00 lacs
38

Margin
Upto Rs.4.00 lacs : Nil
Above Rs.4.00 lacs : Studies in India : 5%
: StudiesAbroad : 15%
Scholarship / assistantship to be included in margin.
Margin may be brought-in on year-to-year basis as and when
disbursements are made on a pro-rata basis.
Security :
Upto Rs.4.00 lacs : No security.
Above Rs.4.00 lacs : Collateral security equal to 100% of the loan
amount or co-obligation of parent/ guardian/third party along with the
assignment of future income of the student for payment of instalments.
Note :-
The document should be executed by both the student and the parent /
guardian.
The security can be in the form of land / building / Govt. securities /
Public Sector Bonds / Units of UTI, NSC, KVP, LIC policy, gold,
shares / debentures, bank deposit in the name of student / parent /
guardian or any other third party with suitable margin.
Wherever the land / building is already mortgaged, the unencumbered
portion can be taken as security on second charge basis provided it covers
the required loan amount.
In case the loan is given for purchase of computer the same to be
39

hypothecated to the Bank.
Repayment
Repayment holiday/ moratorium : Course preiod + 1 years or
6 months after getting job, whichever is earlier.
VARIOUS SCHEMES PROVIDED BY BOB
Education is the most important investment one makes in life. Higher
studies and specialisation in certain fields call for additional financial
support from time to time.
Whether you are planning school education (nursery to standard XII) of
your child, pursuing a graduate or post-graduate degree, the Bank of
Baroda Education Loans, can help finance your ambitions and goals.
Following are the loan options available:
• Baroda Vidya
• Baroda Gyan
• Baroda Scholar
• Baroda Loan For Executive Development
40

 Baroda Vidya
Bank of Baroda presents a one of its kind finance option for parents of
students pursuing school education. These loans are available for studies
between Nursery and Standard XII.
• Zero processing & documentation charges.
• Zero Margin.
• No security required.
• You can repay the loan after moratorium by way of EMI.
Terms & Conditions
Eligibility :
• Should be an Indian national residing in India.
• Student should have secured admission to a recognized school /
Highschool / Jr. College (including CBSE / ICSE / State Board) for
any of the following courses
1. Stage I : Nursery to V th STD.
2. Stage II : VI th to VIII STD.
3. Stage III : IX th to XII th STD.
4. Evening courses of institutes approved by State/Central
Govt.
• No minimum qualifying marks required.
41

Coverage of expenses for :
• Fee payable to college / school.
• Examination / Library / Laboratory Fee.
• Fee and other charges payable to hostel.
• Purchase of books / equipments / instruments / uniforms.
• Personal Computers / Laptops wherever required.
• Caution deposit / building fund / refundable deposit supported by
instituion bills / receipts.
Maximum Loan Amount :
Rs.4.00 Lacs
Rate of Interest :
• Rates of interest charged will be as per Bank's policy on the date of
disbursement of loan.
• 1% concession in rate of interest to loans for girl students.
• Simple interest during repayment holiday/moratorium period.
• Penal Interest @ 2% on overdue amount if the loan amount
exceeds Rs. 2/- lacs.
Repayment Period :
42

• Loan for each yearly sub limit is repayble in 12 equal monthly
instalments. First instalment to be due 12 months after first
disbursement of each years's loan component.
The parents must be residing in the place for a minimum period of -3-
years, except in the case of transferable job.
Security :
• In case the loan is given for purchase of computer the same is to be
hypothecated to the bank.
 Baroda Gyan
A loan product specially designed for students pursuing Graduation, Post
- Graduation, Professional & Other courses in India. Bank of Baroda
extends a helping hand to energize your studies and promote education of
the youth.
• Zero Margin on loan upto 4 lacs.
• Free Debit Card.
• Drafts required in favour of the school or student will be issued
free.
43

Terms And Conditions:
Courses Eligible :
• All Graduation courses.
• All Post Graduation courses & Doctorate courses.
• Professional Courses viz. Engineering, Medical, Agriculture,
Veterinary, Law, Dental, Management, Computer, Ayurved,
Homeopathy, Physiotherapy, Hotel Management, Hospital
Management, Interior Designing, Architecture, Event
Management, Mass Communication, Fashion Technology, etc.
• Computer certificate courses of reputed institutes accredited to
Dept. of Electronics or institutes affiliated to Universities.
• Courses like C.A, ICWA, CFA, CS, etc.
• Courses offered in India by reputed foreign Universities.
• Evening courses of institutes approved by
State/Central/Govt./UGC/AICTE/AIBMS/ICMR/ICAR.
• Courses offered by National Institutes and other reputed private
institutions.
The College/Institute must have been approved by the
State/Central Govt./UGC/AICTE,etc.
Student Eligiblity :
44

• Should be Resident Indian.
• Secured admission to either of above courses
• No minimum qualifying marks.
Coverage of expenses :
• Fee payable to college / Institution / University.
• Examination / Library / Laboratory Fee.
• Fee and other charges payable to hostel.
• Purchase of books / equipments / instruments / uniforms.
• Personal Computers / Laptops wherever required.
• Caution deposit / building fund / refundable deposit supported by
instituion bills / receipts.
• Any other expenses required to complete the course - like study
tours, project works, thesis, etc.
Maximum Loan Amount :
Rs.7.50 Lacs.
Margin :
Upto Rs. 4.00 lacs :- NIL
Above Rs. 4.00 lacs :- 5%
45

• Scholarship/assistantship if any received to be included in the
margin.
• Margin may be broad on year to year basis as and when
disbursements are made on a pro rata basis.
Rate of Interest :
• Up to Rs.4.00 lacs - 12% p.a.
• Above Rs. 4.00 lacs - BPLR + 0.75 (ie 14%) p.a
• Simple interest to be charged at monthly rests during the
repayment holiday/moratorium period.
• Penal interest @ 2% p.a. on overdue amount, if the loan amount
exceeds Rs.4.00 lacs.
• 1% interest concession be provided if interest debited during
repayment holiday is serviced.
• 1% Concession in rate of interest to loans for girl student.
Repayment Holiday/Moratorium Period :
• Course period + 1 year, or
• 6 months after getting job, whichever is earlier.
Repayment Period :
46

• The loan is repayable in 5 years after the above period.
Security :
• Upto Rs.4 lacs : No security
• Above Rs. 4 lacs : Collateral in the form of a suitable third party
guarantee alognwith assignment of future income.
 Baroda Scholar
Bank of Baroda presents financial assistance to students going abroad for
Professional/Technical studies. The loan offering is designed to empower
you with the financial capability to realise your dreams... Achieve your
goals... Reach out to the maximum limits...
• Drafts in foriegn currencies drawn on our branches/subsidiaries
required in favour of College/University/Student will be issued free
of exchange/commission.
Terms & Conditions
Eligiblity of Courses :
Graduate/Post Graduate/Doctorate/Job Oriented Professional/Technical
Courses offered by reputed Universities overseas.
• Should be an Indian National.
47

• Secured admission to Professional/Technical Courses at foriegn
Universities/Institutions.
• No minimum qualifying marks required.
Coverage of expenses (for overseas studies) :
• Admission/Tuition fees to College/University.
• Hostel/Mess charges.
• Examination/Library/Laboratory fee.
• Purchase of books/equipments/instruments/uniforms.
• Caution deposit/building fund/refundable deposit supported by
institution bills/reciepts.
• One way travel expenses/Passage money.
• Purchase of computers if essential for completion of the course.
• Any other expense required to complete the course e.g. study tour,
project work, thesis etc.
Maximum amount of loan :
Graduation & Other Courses up to 3 years duration : Rs.10 Lacs
Post graduation and other advanced studies : Rs.15 Lacs
Margin : 15%
Rate of Interest :
48

• Up to Rs.4.00 lacs - 12% p.a.
• Above Rs. 4.00 lacs - BPLR + 0.75 (ie 14%) p.a. Simple interest to
be charged during the repayment holiday/moratorium period.
• Penal interest @ 2% p.a. on overdue amount if loan exceeds Rs.4/-
lacs.
• 1% interest concession to be provided if the interest debited during
the repayment holiday is serviced.
• 1% Concession in rate of interest to loans for girl student.
Repayment Period :
• Course period + 1 year, or
• 6 months after getting job, whichever is earlier.
The loan is repayable in 5 years after the above period.
• If the student is not able to complete the course within the
scheduled time extension of time for completion of course may be
permitted for a maximum period of 2 years
• If the student is not able to complete the course for reasons beyond
his control, Bank may at its discretion consider such extensions as
may be deemed necessary to complete the course.
The accrued interest during the repayment holiday period to be
49

added to the principal and repayment in Equated Monthly
Instalments (EMI) be fixed.
Security :
• Upto Rs.4.00/- lacs : No security
• Above Rs. 4.00/- lacs upto Rs. 7.5 lacs : Collateral in the form of a
suitable third party guarantee.
• Above Rs. 7.5 lacs : Collateral security equal to 100% of loan
amount.
 Baroda Loan For Executive Development
With the Government of India embarking on the need for significant
economic reforms since the past decade and half, the demand for well-
educated and experienced professionals belonging to various fields has
grown exponentially. In our effort to empower the needs of the people,
we have been constantly designing innovative financial products as our
contribution to the ascent of one of world's fastest growing economies.
To help the future management leaders acquire higher specialized
managerial skills and dominate the global arena, Bank of Baroda brings
to you Baroda Loan for Executive Development, a unique loan facility
for a niche community of working executives.
• To facilitate bright, enthusiastic and high potential working
executives to undergo a specialized course to develop them into
management leaders and change agents in the global arena.
50

Terms & Conditions
Eligiblity of Courses :
Full time Management courses including financial management
conducted by IIMs.
• Should be an Indian National.
• Must possess bachelor's degree or higher education in any
discipline.
• Gainfully employed in executive cadre atleast for 3 years OR
• If self-employed, must be associated in the business in managerial
capacity for last 3 years.
• Present gross annual emoluments / income of the applicant should
not be less than Rs. 2.00lacs.
Age :
Minimum - 25 years.
Maximum : As prescribed by the Institute imparting the course.
Quantum of Loan :
• Maximum : Rs. 8.00 Lacs.
• Need based finance subject to repaying capacity of applicant, based
on present / expected income after completion of the course.
51

Coverage of expenses :
• Fee payable to Institution.
• Examination/ Library fee and other programme related material /
network (internet) charges.
• Purchase of computers if essential for completion of the course.
• Project related expenses.
• Hostel expenses.
• Reasonable family expenses for the course period in case of
married executives, subject to maximum of Rs. 1.20 lac p.a.
• Travel expenses for going abroad for the project assigned to the
applicant relating to the programme.
Margin :
15% (Any scholarship / assistantship, if received, to be reduced from the
total expenses of the course.)
Rate of Interest :
• Rates of interest charged will be as per Bank's policy on the date of
disbursement of loan.
Repayment Period :
52

• Course period + 3 months or 1 month after getting new job or
resuming job, whichever is earlier.
Repayment Period :
• Maximum - 5 - years after the moratorium period in EMI.
Processing / Documentation charges :
As per Bank's norms.
Financing Branch :
Any branch situated in close proximity to :
• The permanent residence of the applicant OR
• The institution where the admission is sought OR
• The place where the immovable property, offered as security is
located.
Security :
• As per bank's norms.
53

SURVEY REPORT ANALYSIS
1) Are you aware of education loan provided by different bank
Yes = 90%
No = 10%
Yes
No
54

2) Have you applied for education loan? If not then do you prefer
to take in future?
Yes = 69%
No = 31%
Yes
No
3) Do you think procedure for education loan is?
Convenient = 77%
Lengthy = 23%
Convenient
Lengthy
4) Is the rate of interest charged by the bank on education loan is
convenient to you?
55

Yes =50%
No = 50%
Yes
No
QUESTIONNAIRE
Q1. What are the important documents that I need to provide?
Ans. You will need to furnish the following documents along with the
completed application form. Relevant information would relate to the
guardian and the student both, when the loan is jointly taken.
• Mark sheet of last qualifying examination for school and graduate
studies in India
• Proof of admission to the course
• Schedule of expenses for the course
• Copies of letter confirming scholarship, etc.
• Copies of foreign exchange permit, if applicable.
• 2 passport size photographs
56

• Statement of Bank account for the last six months of borrower
• Income tax assessment order not more than 2 years old
• Brief statement of assets and liabilities of borrower.
If you are not an existing bank customer you would also need to establish
your identity and give proof of residence.
Q2) Who can be co-obligant ?
Ans. The parents, guardians, friends and relative can be co-obligant.
Q3) Do you offer any concession ?
Ans. Yes, we do offer 1% interest concession to student loanee, if the
interest is serviced during the study period when repayment holiday is
specified for interest / repayment under the scheme.
Q4) Do you levy any penalty for default under the scheme?
Ans. Yes, we charge penal interest @ 2% on overdues amount in the loan
exceeding Rs.2 lacs.
Q5) What type of interest do you charge under your Education Loan
Scheme ?
Ans. We charge simple interest at quarterly rests during the repayment
holiday /moratorium period.
Q6) What is EMI? How is it calculated?
A. EMI stands for Equated Monthly Installments. This installment
comprises both principal and interest components. Your EMI would be
57

calculated depending on the tenor you choose, to repay your loan. The
EMI would be higher if you choose to repay within a shorter period as
against a longer-term loan. A shorter repayment period, however, reduces
your interest cost over the term of the loan.
CONCLUSION
In the ultimate analysis, as education is an investment
producing income in the future educational loans are important means of
social mobility, of leveling the playing field for talent, regardless of
social background. Hence they cannot be allowed to dry up. India has the
potential for becoming an education hub for a large number of developing
countries, particularly from the Africa, which do not have the factors
needed to create modern educational infrastructure.
As the need of the hour is rapid expansion of supply of quality
education, banks should make all possible effects to continue the scheme
of education loan by adhering to the guidelines.
58

BIBLOGRAPHY
WEBSITES
 www. State Bank of India.com
 www. Bank of Baroda.com
 www. google.com
BOOK REFFERED
 Banking Theory And Practice- Dr. P.K.Srivastava
59

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