Banks have been asked to assign reasons for rejecting any educational loan applications, Parliament was informed today.

“Banks have been advised that rejection of education loan applications has to be with the approval of controlling authority of the branch concerned and the reason for rejection should be communicated to the applicants in writing,” Finance Minister P. Chidambaram told Rajya Sabha in a written reply.

“Indian Banks’ Association has advised the banks to give wide publicity to their grievance redressal mechanism on education loans and to make effective use of the mechanism,” he said.

The Minister also said the “complaints regarding educational loans, as and when received, are taken up with banks concerned for corrective action“.

The banks had Rs 27,000 crore outstanding on education loans as of March 2009, Rs 35,850 crore as of March 2010 and Rs 41,340 crore such loans as of March 2011, as per the data from the Reserve Bank.

The RBI had recently asked banks not to reject any education loan even if the residence of the borrower does not fall under their service area.

Also to remove problems faced by students in obtaining education loans, the Government is working on a scheme under which it would extend guarantee for advances up to Rs 7.5 lakh.

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