Banks wary of rising NPAs from education loans,go slow on lending
Banks wary of rising NPAs from education loans, go slow on lending
Number of loan disbursements has dropped over 60% between 2009-10 and 2014-15 with banks focusing largely on loans higher ticket size of Rs 10 lakh plus category, CRIF High Mark Credit Information Services said in a report. It said that 7% NPA observed in education loan portfolio with nearly 10% of active loans being 90 days past due.
Banks wary of rising NPAs from education loans, go slow on lending
Making higher education affordable may be a key to Prime Minister Narendra Modi's 'Make in India' plan a success, yet the growth in education loan has been steadily declining with the number of loan disbursements seeing a 60% fall since 2009. High non-performing assets in this space made banks averse of lending while the proposed Rs 3,500-crore higher education credit guarantee scheme to cover the loan losses is still being worked on
Lenders faced most education loan NPAs in the loans up to Rs 4 lakh which forced them to go slow on disbursement making the deserving students suffer. The sticky loan ratio is as high as 7% on an average compared with 1.5% in the home and car loans.
"The poor employment scope with the increased scale of finance for the technical and professional courses is the primary reason behind the poor repayment of education loans," State Bank of India told ET, responding to a questionnaire sent to chairman Arundhati Bhattacharya.
According to the model education loan scheme prepared by Indian Banks' Association (IBA), the repayment in education loan is supposed to come out of the future income generation of the student after getting employed. "With the cost of education going up, there is a growing mismatch between the monthly generation of income and the commitments on account of repayments," SBI said.
SBI, the country's largest lender, is aiming to grow education loans 7% this fiscal over Rs 15500 crore as on March 2015. According to Reserve Bank of India data, education loans grew 5.8% year-on-year in 2014-15, less than the previous two fiscals. The growth rate fell from 9.2% in 2013-14 and 10% in 2012-13.
Number of loan disbursements has dropped over 60% between 2009-10 and 2014-15 with banks focusing largely on loans higher ticket size of Rs 10 lakh plus category, CRIF High Mark Credit Information Services said in a report. It said that 7% NPA observed in education loan portfolio with nearly 10% of active loans being 90 days past due.
The decline has been gradual and more severe for PSU banks, which dominate this space.
"Every student who takes an education loan creates a footprint in the credit bureaus database. Whenever this individual applies for a new loan or a credit card in future, the credit score will reflect the history from education loan," said Kalpana Pandey, CEO & MD of CRIF High Mark Credit Information Services. "A default on education loan will certainly impact the ability of the individual to avail credit in future," she said.
The higher education credit guarantee scheme promises to provide guarantees to unsecured loans of up to Rs 7.5 lakh. Banks would deposit 1% of every student loan amount in this fund. The corpus would be Rs 500 crore for the first year.
The average ticket size of education loans has doubled in last five years to nearly Rs 5 lakhs from Rs 2.5 lakhs with higher education getting costlier by the day. Many students are taking courses outside India, which invariably are more costly and over Rs 7.5 lakh. Loans to study abroad are backed by securities and therefore NPA are less in this category.