Mihir Mishra
According to data accessed by The Indian Express, low-value education loans (up to Rs 7.5 lakh) make up the bulk of banks’ education loan portfolio.
Data on Non-Performing Assets (NPAs) (Non-Performing Loans) in Education Loans of Public Sector Banks (PSBs), obtained through the Right to Information Act, shows that the ratio of non-performing loans (NPAs) to students in primary educational institutions is much lower as compared to secondary institutions.
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Around 239 educational institutes like IITs, IIMs, NITs and AIIMS are classified as premier educational institutes by banks.
According to the data, 4.7 per cent of the total education loans issued by State Bank of India, Canara Bank, Union Bank of India and Indian Overseas Banks have turned into NPAs (non-performing loans). In contrast, about 0.45 percent of the total educational loans for students in primary educational institutions turned NPA. These four banks together account for 65 per cent of the total loan value of public sector banks.
In total, about 8 percent of the education loans disbursed by the 12 public sector banks, whose repayments have been initiated, have turned NPA.
For academic loans, students get a grace period of up to 12 months after completing their studies. So, for a four-year B.Tech course, the repayment period starts only after completion of the fifth year if the student does not get a job. Repayment starts immediately if the student starts earning immediately after graduation.
Following a large number of low-value education loans from public sector banks turning into bad loans, banks have slowed down disbursement of such loans, affecting students enrolled in post-secondary institutions across the country.
Public sector banks are the largest lenders in the education loan sector and have a market share of around 91 percent. Rural banks and private banks account for the remaining 9 percent of the market.
Bankers told The Indian Express that defaults on low-value education loans are a concern for banks, which may make them reluctant to widen their loan portfolios by lending to low-value loans.
“Loans of low value (up to Rs 7 lakh) are said to be the most defaulted. Banks are not willing to lend as liberally to that segment as they did earlier. This reluctance of banks to lend to that segment will continue and they may compensate by opting for relatively safer high-value loans,” said a banker on condition of anonymity.
Another banker said defaults in the sub-prime loan segment may have worsened post-Covid. “The problem of unemployment among students passing out from secondary institutions has worsened post-Covid, which has led to this situation,” he said.
Meanwhile, the government has expressed concern over the slowdown in the disbursement of education loans. The Department of Financial Services convened a meeting of these banks in August, citing complaints received from various quarters, including the Prime Minister’s Office and VIPs, about delays in disbursal of loans and denials on flimsy grounds.
However, Rs. Banks will not be willing to increase the loan amount for loans below 7.5 lakhs. As per the model loan scheme, for education loans up to Rs 4 lakh, the borrower does not need to provide any collateral, education loans up to Rs 7.5 lakh can be availed with suitable third party guaranteed collateral and Rs. More than 7.5 lakh education loans require solid collateral. In all these cases, joint guarantee of parents is necessary.
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