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.

Panel on education loan suggests creation of credit guarantee fund

Source :BL:KOLKATA, JULY 13:2011

Creation of a credit guarantee fund,

 extension of the tenor of repayment

 and moratorium period of educational

 loans are some of the key recommendations 

of the expert committee on education loan

 scheme constituted by the Indian Banks' Association (IBA)

The committee has submitted its recommendations to the Finance Minister, Mr Pranab Mukherjee, and the draft paper on the education loan scheme is likely to be released in a month's time, according to Mr T. M. Bhasin, Chairman and Managing Director, Indian Bank.

The expert committee was set up by IBA under Mr Bhasin to modify the education loan scheme launched in 2001-02.

“We have recommended the creation of a credit guarantee fund. A portion of the funds in the corpus could come from the government and a portion from banks. A certain portion of the premium on loans could also be set aside in the corpus,” Mr Bhasin told Business Line.

Banks have been urging the Centre to set up a credit guarantee fund on the lines of the fund created for the MSE (micro and small enterprises) by the Government and SIDBI (Small Industries Development Bank of India).

Concerned over the rise in defaults of educational loans, banks have been trying to rework some of the existing norms on such loans.

DEFAULT RATE

The cumulative outstanding under education loans for all banks stands at about Rs 45,000 crore as on date and the defaults are in the range of three-to-five per cent, Mr Bhasin pointed out. The defaults are higher on loans below Rs four lakh, which are collateral free.

The committee has suggested extension in the repayment period of education loans from five-seven years now to10-15 years to facilitate repayment and reduce the probability of default. “The moratorium period on such loans is typically six months. We have suggested it to be extended to one year,” he said.

, 

Students' degrees could soon brand them defaulters

Source :BL:NewDelhi:july 13,2011

If you've defaulted on repaying an education loan, soon that fact could be stamped on the back of your degree or diploma certificate. The Indian Banks' Association (IBA) is said to be considering such a proposal to bring down non-performing assets (NPAs) in education loans.

THREE-PRONGED STRATEGY

“We have suggested a three-pronged strategy for the revised scheme. This includes tracking the student and creating a special credit guarantee fund for the education loan, besides stamping the certificate,” the chairman and managing director of a nationalised bank said.

The scheme will need the nod of both the Finance Ministry and the Reserve Bank of India before it can be introduced, added the chief executive of another bank.

Educational institutions are divided over this proposal. The Executive Director and Dean of Manav Rachna University, Col (Retd) V. K. Gaur, says, “It is not a good idea. Procedures for taking education loan are already very lengthy. Banks take more and more precautions, now one more provision will make life difficult for the students.”

He is apprehensive that stamping of certificates could be another way to exploit students.

On the other hand, Prof C. P. Singh, Professor-in-Charge of University School of Mass Communication, Guru Govind Singh IP University, supports the new proposal. He says, “If the certificate carries a stamp, what is wrong in it, if your conscience is clear, you would like to pay on time.”

FINALISATION OF SCHEME

The revised scheme is likely to be finalised within the next two months. Sources told Business Line that the initial structure of the revised scheme was discussed at a review meeting of public sector banks held last Friday.

Bankers are worried about the rising trend of NPA in education loans. Though they are not giving the exact percentage of standard assets turning into NPAs in the category, declining year-on-year growth in terms of accounts added and outstanding amount say a lot (see table).

Bankers say that the new system would require active co-operation from educational institutions for which specific instructions from the HRD Ministry will also be required. There is a strong possibility that a special credit guarantee fund will be created for education loans.

The size of the fund could be Rs 5,000 crore. It was also suggested that the loan repayment tenure should be increased to 15 years from the existing seven years. Though it was felt that such an option would increase the rate of interest, providing this option has not been ruled out.