Rajashekhar M. Swamy was a bright student and a dotting son. His parents were simple, religious and people with integrity. Swamy's father always wanted to join the army but owing to "flat feet" he failed the physical test. Although, he couldnâ€™t make it to ranks but he never burdened Swamy with his dreams.
So, when Swamy told his parents that he wanted to become a chef, his father readily applied for an education loan of 10 lakhs with SBI. He gave his fixed deposit as collateral, which he had been saving for years.
Swamy successfully completed the course within the time frame and was also picked by top chefs to intern in UK. Inspite of being gainfully employed, Swamy simply ignored his education loan. He believed that since he now lived in UK, an Indian bank could no where touch him. Fearing that his parents would force him to pay he chose not to tell them about his "intentions".
All this while, Swamy's parents were worried that their son must be struggling to make ends meet and therefore he was not able to pay the loan EMIs on time. Swamy's father tried to keep up with payments for him but alas, due to humble means, he couldnâ€™t make them on time. He lost his FD and retirement plans went down the drain.
This entire episode, led Swamy's CIBIL score in India to be spoiled, his father's credit score tanked and "Rajashekhar M. Swamy" was registered as a defaulter with the bank.
Some years later, back in India Swamy wanted to start own restaurant. When he applied for a business loan, he couldn't get one. Now he was desperate for a loan, because his dreams hinged on one.
It is a notion that CIBIL maintains a "loan defaulters list". While it does not, banks do. Banks keep a record of all those people who are "blacklisted" from receiving any credit facilities from the bank. This list contains the name of all such people who had taken loans and then did not make the payments.
"Once bitten, twice shy" appropriately defines this situation. A default leaves the bank with an unpleasant experience and therefore they do not want to revisit the same place. They simply jot down the details of the borrower in a list and keep it with themselves for future reference.
Banks classifies the defaulters into those who are wilful, non-cooperative, fraudsters, etc. The list is maintained by Reserve Bank of India and Indian Bank's Association too. Thus, banks not only check the CIBIL report of the individual but also scoot through the bank defaulter's list.
Loans are processed centrally. So whenever a bank receives a loan application, it checks for borrower's details in its defaulter's list. This is one of the foremost checks the bank does. If the identity of a fresh applicant matches with that of a defaulter, the loan application is rejected then and there, without further ado.
As a standard industry practice, once an EMI is overdue for 90 days, the bank defines it as an NPA. The borrower is then listed as a bank defaulter. If the loan still remains underpaid or unpaid, they stand a risk of losing the collateral submitted.
Swamy did not think an education loan default could bring such tremors in his life. He believed it was done and dusted in the past. It wouldn't be wrong to say that his parents had to pay for his wrongdoings. They lost their FD which they had been building for years. The only option left with them was to have access to credit through loan for low CIBIL score which is an expensive proposition. And all this because Swamy decided to default.
Swamy did not plan for the future. One has to look ahead and examine the implications of their actions on their future life. Invest in appropriate insurance policies to deal with emergencies. Never mess with your debts because you may need to go the credit way in future.
In an education loan, a default spoils the credit score of the student and his or her parent, who is the co-borrower. Being listed in a bank defaulter list is as good as having a poor credit score. Either ways you are not eligible for a loan. Banks maintain a defaulter's list for all retail and corporate loans.
If you are stuck in a similar situation, where you have had to default a debt in the past (intentional or circumstantial), there is a fair chance that your name is registered with the bank as a defaulter.
The only way to have your name removed from a defaulter list is to settle the debt in totality and seek a "Letter of Closure" or "No Dues Certificate" from the bank. That is the way it should have happened earlier. That is the only way forward.