New Delhi: The government will soon set up a fund that will provide
surety to banks against loans given to students for higher education.
Called the higher education credit
guarantee fund, it is likely to improve the credit flow to needy and
meritorious students.
The fund will have a corpus of Rs.3,500 crore but will start operations with Rs.500 crore in this fiscal year. A notification to this
effect shall be made next month, said two government officials who did not want
to be named.
“There is a lot of delay in setting
up of the fund but finally it’s going to be established in next few weeks. The
human resource development (HRD) and the finance ministries have finished the
homework,” the first government official said.
Both ministries believe that
education loans, a priority sector, have been a sticky point for both banks and
students. While students complain of reluctant banks, banks talk about the
risky nature of such loans. The credit guarantee fund is expected to take care
of the banks’ concern.
“It will guarantee up to 75% of the
education loan amount. Successive finance ministers have spoken about
handholding this sector and credit guarantee to banks will improve the
confidence of banks and help needy and meritorious students get loans,” the
official said, adding that less than 10% of students pursuing higher education
have availed of study loans.
The fund will provide
guarantees to unsecured education loans of up to Rs.7,50,000. Banks will deposit 1% of every student loan
amount in this fund.
The first official said that after
the moratorium period—one year after the end of studies or six months after
getting a job, whichever is earlier—banks may have to give 15-18 months to the
student borrower.
If, after this lock-in period, the
student does not start repayment, then 50% of the credit amount will be given
at one go to the bank. The remaining 25% will be paid after a certain period of
time, during which the concerned bank may initiate legal action against the
borrower.
As of February 2015, banks had a
total outstanding ofRs.59,256 crore as
education loans, compared to Rs.57,129 crore a year ago, according to data with the Reserve
Bank of India. The first official cited earlier said the loan portfolio growth
is not very encouraging.
The official said the HRD ministry
will be the key driver of the fund. Earlier, the finance ministry had contended
that such funds should be administered by it since bank loans are tied up with
the scheme. The plan to start such a fund was first mooted in 2012 by then
finance minister Pranab Mukherjee.
“We have told the HRD ministry that
they should take over the education fund since they understand the requirements
of students better,” said a finance ministry official, who did not wish to be
identified.
K. Srinivasan, convenor of the
Educational Loan Task Force, a Chennai-based organization working in the field
of education loans, said the study loan portfolio currently is too small and it
can easily double if banks become supportive.
He said that only around 2.6
million students have opted for student loans in India
and that this number can go up if the credit guarantee fund is set up soon.
India has around 30 million students in higher educational institutions.