Banks grow wary due to high NPAs in education loan market

High default rates of around 8% in the school loan portfolio made banks reluctant to approve such loans. At the end of the June quarter of the current fiscal year, non-performing assets (NPA) in the education lending category, including public sector banks (PSBs), was 7.82%. At the end of June, there were around Rs 80,000 crore in outstanding student loans.

As a result, some legitimate instances are being overlooked and there are delays, according to the official.

Due to large NPAs, a senior official of a public sector bank said a cautious approach is used at the end of branches when issuing school loans.

The Ministry of Finance recently convened a conference of PSBs to assess the education loan portfolio and reduce backlogs. The government has urged banks to educate field formations on the central sector interest subsidy scheme.

PSBs distribute over 90% of education loans in India. Private sector banks and Regional Rural Banks (RRBs) accounted for about 7% and 3% of total outstanding education loans, respectively.

According to an occasional article published by the RBI, the substantial increase in non-performing assets (NPA) in education loans made by commercial banks in India in recent years is of concern as it could choke off bank credit growth for Higher Education. in the country.

According to the RBI Report on Trends and Progress of Banking Industry in India 2020-21, the outstanding education loans of all banks totaled Rs 79,056 crore at the end of March 2020 and Rs 78,823 crore at the end of March 2020. rupees in March 2021. However, as of March 25, 2022, the outstanding debts were Rs 82,723 crore.

According to Jyoti Prakash Gadia, managing director of Resurgent India, the creation of new jobs has not kept pace with the number of graduates coming out of universities, thus influencing the timely repayment of student loans.

As a result, NPAs have increased and banks are cautious to make further advances in education, especially loans of up to Rs 7.50 lakh without collateral or third-party guarantees, he said. He noted that the proper implementation of the new education policy, which places strong emphasis on the development of fundamental skills and employability, will result in a win-win situation for all stakeholders.

Most banks offer an education loan program based on the Indian Banking Association (IBA) model for students wishing to pursue higher education in India and abroad. This model loan scheme does not require any collateral from the borrower for student loans up to Rs 4 lakh, collateral in the form of a third party guarantee acceptable for student loans up to Rs 7.5 lakh and tangible collateral for student loans above Rs 7.5 lakh. In all the above circumstances, parental co-obligation is required.

The second category of student loans is granted to students who gain admission into colleges/universities through management quotas and who meet the minimum grade criteria in the previous test. The third category of education loans includes programs for needy students to take vocational training courses offered by industrial training institutes (ITIs), polytechnics, training partners affiliated with the National Skill Development Corporation (NSDC )/sector skills councils, state skills mission/society, preferably leading to a certificate/diploma/diploma issued by such organization in accordance with the National Skills Qualifications Framework (NSQF) and any other recognized institution by the government.

The fourth category of programs mainly caters to the needs of students studying at top universities such as IIT/IIM/NIT/IISc or courses abroad, which require a larger loan amount. The Reserve Bank of India has placed all education loans up to Rs 10 lakh (which will be increased to Rs 20 lakh in September 2020) under the priority sector criteria. The length of the moratorium in most of these plans is the course period plus six months to a year, and there are no small processing fees for plans with high-value student loans.

Based on the reputation of the course/institutions, the interest rate of the different schemes is a 2-3% markup above the marginal cost of funds based lending rate (MCLR)/external benchmark. The repayment period is between 10 and 15 years.

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  • Banks grow wary due to high NPAs in education loan market
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Priscilla C. Carnegie