Repayment crisis in education loans worries TN banks

Source :Aparna Ramalingam, TNN : Dec 8, 2011, 04.34AM IST


CHENNAI: The number of educational loans that are not being paid back is increasing in the state. 


Non-performing assets (NPAs) in educational loans stood at Rs 528.16 crore, accounting for 5.02% of the educational loan business on June 30. For co-operative banks, this figure stood at Rs 1.6 crore representing 1.25% of the total educational loan portfolio of such banks, as per a report of the State -Level Bankers' Committee (SLBC). 


"In case of educational loans, repayment normally commences after completion of course or after bagging a job. With professional courses like engineering and medicine being four to five years long, repayment is an issue," said M Narendra, chairman, SLBC, Tamil Nadu, and CMD, Indian Overseas Bank. "Only 30% of students in the state get recruited from campus. The rest have to look for jobs. So repayment becomes a problem," he said. 


While there is no security required for educational loans up to Rs 4 lakh, the co-borrower (usually the parent) stands as guarantor for loans between Rs 4 and Rs 7.5 lakh. Educational loans in India normally range between Rs 4 and Rs 45 lakh with the repayment period being seven to 10 years. 


Loans disbursals in the state registered a growth of 37% to touch Rs 12,103 crore in September compared to Rs 8,841 crore last year. "While the percentage of NPA in priority sector advances has come down in all categories between March and June, it has gone up in educational loans considerably," says the report. 


One reason is the recent influx of students from north India to engineering colleges in Tamil Nadu. "Many of them don't have a permanent address and it becomes difficult to track them once they complete the course," said SN Mishra, convenor, SLBC. 
Rising interest rates have resulted in higher educational EMIs and this has contributed to the rise in delinquencies, said bankers. 


Bleak employment opportunities abroad have also contributed to rising NPAs. "Earlier, women graduating from nursing colleges used to bag jobs abroad within six months to a year. Opportunities abroad have dwindled since 2008 and this is being reflected in the repayment pattern," said a senior official from Central Bank of India.