New Delhi, Sept. 22: The Reserve Bank of India has included loans to educational institutions under priority sector lending in a move that could boost participation of private organisations in education.

Interest rates on priority sector lending are 3 to 4 per cent less than normal interest rates that vary between 14 and 15 per cent a year. The period of repayment will also be longer, preferably over 20 years.

In a July 2011 master circular, the central bank said “loans granted to educational institutions will be eligible to be classified as priority sector advances under micro and small (service) enterprises, provided they satisfy the provisions of the MSMED Act, 2006”. This means any educational institution, either registered as a trust or society or a not-for-profit Section 25 company under the Companies Act, 1956, would get loans from any bank if it qualifies under the Micro, Small and Medium Enterprises Development (MSMED) Act.

Under Section 7 (b) of the MSMED Act, micro and small-service enterprises/educational institutions are those that have investment in equipment not exceeding Rs 10 lakh and Rs 2 crore, respectively.

P.T. Giridharan, joint director, Institute of Chartered Accountants of India, said the RBI decision would encourage private firms to come forward and open educational institutions. “Till date, getting loans for educational institutions was not easy. Institutions that got it had to repay at the normal rate of interest like any commercial organisation though education is a not-for-profit sector. Now loans to educational institutions will be one of the priorities for banks,” Giridharan said.