Securing an education loan for the upcoming academic session is
set to be a difficult task, with several banks not keen on lending to students
owing to a large number of defaults. The default rate, credit experts said, is
high – 5% to 10% – in the education loan segment as against home and car loans
(1.5%).
As a result, the growth rate of education loans has been
steadily declining. Data from the Reserve Bank of India (RBI) revealed that in
2014-15, the segment grew just 5.7% year-on-year compared to 9.2% in 2013-14,
10% in 2012-13 and 10.36% in 2011-12.
“Asset quality is a big concern for banks as the job market is
not robust or is not paying enough for borrowers to pay off loans,” said
Anuradha Rao, who heads personal banking at State Bank of India (SBI), the
country’s largest public sector lender.
Adding to the reluctance of banks to disburse education loans,
the IBA has listed only 1,100 accredited institutions.
Ramesh is not an isolated case. A large number of students are
often in a fix when it comes to repaying their education loans. The repayment
process usually starts after the ‘moratorium period’, which is either a year
after the end of the course or six months after getting a job, whichever is earlier.
The percentage of students taking a loan and the amount varies
based on institutes and streams. According to experts, getting loans is more
difficult for students who are not applying to top institutions or those who
want to pursue off-beat courses. At premier institutions, such as the Indian
Institutes of Technology (IIT) and Indian Institutes of Management (IIM), 30%
students from a batch usually apply for loans. Students pursuing engineering
typically apply for loans in the range of Rs. 7 lakh to Rs. 10 lakh, while
those studying management tend to borrow between Rs. 10 lakh and Rs. 40 lakh.
While some top institutes such as IIM-B have started their own
financial aid departments, where help, apart from scholarship from the
government, is provided to students, others have tied up with various public
sector banks to offer loans. Central Bank of India, for instance, provides a
loan of up to Rs. 20 lakh with no collateral for students of IIMs. SBI also has
special education loans for students securing admission to IITs, IIMs, NITs,
AIIMS and other reputed institutions.
Also, a recent proposal by the central government is likely to
encourage banks to disburse more education loans without worrying about
defaults. The government is looking to create a Rs. 1,000-crore credit
guarantee fund for education loans that banks can draw upon in case of
defaults. It aims to guarantee a cover of up to 75% of the loan amount.
Bankers, however, are not entirely convinced. “While education
sector needs such financial assurances, which will also benefit meritorious
students, the risk factor for banks has not been taken into consideration
entirely,” said a Canara Bank official, who did not wish to be named.
Credit Score Scare
The Credit Information Bureau (India) Limited (CIBIL) had
recently announced that non-repayment of education loans will affect one’s
credit score. A credit score reflects the financial health of an individual and
is an important parameter for obtaining Education loan for MBA
in the future.
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