Consumer panel fines SBI for treating education loan as personal loan

The District Consumer Disputes Redressal Commission, Jalandhar, has penalised the Lambra branch of the State Bank of India on the Nakodar road for treating an education loan as personal loan and charging higher interest from an MBBS student.

Directing corrective measures, the commission also ordered the bank to refund the excess interest, extend eligible interest subsidy and pay Rs 20,000 compensation for mental harassment caused to the complainant and Rs 10,000 as litigation expenses.

The complaint was filed by Sangeena and her father Ram Pal, residents of Maqsudan. In 2012, Sangeena had applied for an education loan of Rs 4 lakh from SBI’s Lambra branch for pursuing her MBBS degree. The loan documents were executed jointly by her and her father as co-borrower. According to the complaint, all required documents were submitted for an education loan under the bank’s education loan scheme.

However, the complainants noted that instead of sanctioning the education loan, the bank treated the loan as a personal loan without informing them. A personal loan carries a higher rate of interest and does not provide the benefit of a moratorium period. Under the education loan scheme, repayment starts a year after completion of the course and the tenure can extend up to 15 years.

The student completed her MBBS degree in 2016 and her compulsory internship in January 2018. She was registered with the Punjab Medical Council in March 2018. She argued that repayment should have started in April 2019 after the moratorium period. However, the bank started recovery earlier and classified the account as a NPA in April 2018, hampering her CIBIL score.

The complainant approached the banking ombudsman in 2019 where the ombudsman directed the bank to reset the interest, not to charge penal interest, extend the repayment period by one year, update the CIBIL report and process the interest subsidy. The complainant also paid Rs 65,895 as directed by the ombudsman for April 2018 to February 2019 as resetting of interests.

However, she asserted that the bank later fixed the repayment period at 43 monthly installments instead of a longer tenure under the education loan scheme. She also claimed that the interest refund was wrongly calculated and the NPA tag was not properly removed, prompting her to take her case to the District Consumer Disputes Redressal Commission.

During the proceedings before the commission, documents obtained under the Right to Information Act showed that the loan was converted from personal loan to education loan on March 27, 2019. The commission observed that the application was for an education loan and that important details in the loan agreement were left blank at the time of execution. It held that sanctioning and treating the loan as a personal loan amounted to deficiency in service and unfair trade practice.

In its final verdict dated January 30, the commission, chaired by Dr Harveen Bhardwaj and member Jyotsna, directed the bank to treat the account strictly under the education loan scheme, recalculate interest at the applicable rate, refund excess interest, including eligible interest subsidy and update the CIBIL record by removing the NPA tag. It also directed the bank to pay compensation and litigation costs to the consumer.