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Banks reluctant to disburse educational loans despite decline in defaults  

Banks can lend up to Rs 7.5 lakh for studies in India and up to Rs 15 lakh for studies abroad.

Published: 24th January 2022 06:29 AM  |   Last Updated: 24th January 2022 06:29 AM   |  A+A-

Bank, Banks

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Express News Service

KOCHI:  Banks in Kerala seem to be avoiding education loans -- a major source of funding for students from lower-income strata to pursue higher studies in India and abroad -- despite a decline in defaults in repayments.

As per the latest statistics, the total number of students who have availed education loans have declined by 24,257 in the quarter ended September 30, 2021, from 3,32,645 to 3,08,388 in the quarter ended June 30, 2021. This is a decline of 7.29% quarter-on-quarter. When compared to the September 2020 period, the decline is even sharper at 56,404, or 15%, from 3,64,797.

Interestingly, the total outstanding education loans have shown a marginal increase of 4.28% in September 2021 at Rs 11,158 crore from Rs 10,700 crore in June 2021. “This maybe because while the banks are ready to disburse loans above Rs 7.5 lakh per student they are reluctant to sanction loans below Rs 4 lakh per student,” said K S Krishna, national joint secretary, All India Bank Employees Federation (AIBEF). 

For education loans up to Rs 4 lakh, no collateral or margin is required while for loans above that limit the borrower is required to provide collateral, making banks comfortable to lend higher amounts. From the year-ago period, however, the total outstanding education loans in Kerala dipped by Rs 378 crore (3%) from Rs 11,536 crore to Rs 11,158 crore in September 2021. As per the data, out of the total outstanding education loans, Rs 5,522.05 crore (49.48%) is lent to loans about Rs 7.5 lakh per student and Rs 1,695.74 crore for loans from Rs 4-7.5 lakh. Simply put, nearly 65% of the education loans is sanctioned for those who are willing to provide a collateral. 

Under the education loan scheme, banks can lend up to Rs 7.5 lakh for studies in India and up to Rs 15 lakh for studies abroad. “So, the social purpose of helping those students who are struggling to finance their higher education costs is lacking in this scenario,” said Krishna. The NPAs in the education loan segment declined from 10.32% in the June 2021 quarter to 9.17% in September 2021 quarter. In absolute terms, the NPA fell from Rs 1,104 crore to Rs 1,023 crore, a decline of Rs 81 crore quarter-on-quarter.

T Narendran, president of Bank Employees Federation of India (BEFI), Kerala, said that though the repayment of the education loans begin only after six months of the completion of the course, or when the student gets a job, whichever is earlier, the interest rate is calculated from the day the loan is sanctioned. “So, it’s like a ticking time bomb for students,” he said.

For loans below Rs 4 lakh, the interest rate should not exceed the prime lending rate (PLR) and for above Rs 4 lakh, the interest rate should not exceed PLR plus 1%. “In reality, this is much higher as the rates are calculated from the date of the loan sanction. Further, when the student gets a job, he/she may have missed one or two installments, affecting his credit score, which in turn impacts the student’s career prospects,” said Narendran.



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