High NPAs in the education loan market make banks wary


Banks are cautious and take their time when approving such credit because of the high default rate of roughly 8% in the portfolio of student loans.

At the conclusion of the June quarter of the current fiscal year, the percentage of non-performing assets (NPAs), which includes public sector banks (PSBs), in the category of education loans was 7.82 percent. About Rs 80,000 crore in outstanding student loan balances as of June 30th.

Due to large NPAs, a cautious approach is used while issuing education loans at the end of branches, according to a top public sector bank official.

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As a result, the official claimed, some sincere instances are neglected and there are delays.

A conference of PSBs was recently summoned by the finance minister to assess the portfolio of education loans and reduce delays. The government urged banks to inform field formations about the Central Sector Interest Subsidy Scheme.

According to an occasional paper released by RBI, the substantial rise in non-performing assets (NPA) in education loans made by commercial banks in India in recent years is cause for worry since it may impede the expansion of bank lending for higher education in the nation.

In India, the PSBs are responsible for disbursing around 90% of all student loans. According to a study released in June 2022, private sector banks and regional rural banks (RRBs) held around 7% and 3%, respectively, of the total amount of outstanding student loans as at the end of March 2020.

According to the RBI’s Report on Trend and Progress of Banking in India 2020-21, there were 79,056 crore rupees worth of outstanding education loans held by all banks at the end of March 2020 and 78,823 crore at the start of March 2021. However, as of March 25, 2022, the total amount of outstanding debts rose to Rs 82,723 crore.

Jyoti Prakash Gadia, managing director of Resurgent India, claims that the number of new jobs has not kept up with the number of college graduates, thus affecting the timely repayment of student loan debt.

As a result, NPAs have increased, and banks are reluctant to offer new student loans, especially for loans up to Rs 7.50 lakh that lack any kind of collateral or third-party guarantee, he claimed.

All parties involved will benefit from the successful implementation of the New Education Policy, which places a strong focus on developing fundamental skills and employability, he continued.

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The majority of banks provide students pursuing higher education in India and abroad with an education loan programme that follows the paradigm set out by the Indian Banks’ Association (IBA).

According to this sample loan plan, borrowers are not required to submit any collateral for education loans up to Rs. 4 lakh, loans up to Rs. 7.5 lakh can be secured with security in the form of an appropriate third-party guarantee, and loans over Rs. 7.5 lakh require actual collateral. Parents must share responsibility in each of the aforementioned situations.

Students who are admitted to colleges or universities through the management quota are eligible for the second category of education loans as long as they met the necessary mark requirements in the previous test.

The third category of education loans includes programmes for needy students to pursue vocational education courses offered by industrial training institutes (ITIs), polytechnics, training partners affiliated with the National Skill Development Corporation (NSDC)/sector skill councils, state skill mission/corporation, preferably leading to a certificate, diploma, or degree issued by such an organisation in accordance with the National Skill Qualification Framework (NSQF), and any other institutions recognised by the government.

The fourth type of programme primarily meets the needs of students enrolled in courses overseas or at prestigious universities like IITs, IIMs, NITs, and IISc who need a larger loan amount. The Reserve Bank of India has included all student loans up to Rs 10 lakh (which will be increased to Rs 20 lakh in September 2020) to its definition of the priority sector.

The majority of these programmes have moratorium periods that last for the length of the course plus six to twelve months, and the processing costs for programmes with high-value student loans are zero or little.

Based on the standing of the program/institutions, the interest rates under the different schemes have a markup of 2–3% above the marginal cost of funds based lending rate (MCLR)/external benchmark. The time frame for repayment is between 10 and 15 years.

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