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Government-owned banks have decided to provide cheaper education loans to girls by extending a special interest rate discount of at least 0.5 percentage points on the card rate.

The Indian Banks' Association on February 4 asked its members to make available new loans to girls at concessional rates, setting a borrowing limit of Rs 10 lakh for studies in India and Rs 20 lakh for education overseas.

The finance ministry initiated the move to set up the model educational loan scheme on the basis of observations by a parliamentary panel, an official in the ministry said.

At present, the interest rate on education loans is between 11% and 13%. Public sector banks cannot charge more than their benchmark prime lending rate (PLR) for education loans up to Rs 4 lakh. For loans over Rs 4 lakh and up to Rs 20 lakh, the maximum rate of interest cannot be more than one percentage point above PLR.

"Some public-sector banks were already offering concessional schemes for education loans to girls. Now, there would be a dedicated scheme for all banks," said the official.

Loans for education are classed as priority sector advances by the Reserve Bank of India. According to rules, at least 40% of bank loans should be to priority sectors such as agriculture, small enterprises, education and housing.

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