Student loans dry up as bad debts climb at banks

An increase in non-performing assets have led several public sector banks to go slow on educational loans, latest data complied by the Finance Ministry shows.

“Banks have achieved 50 per cent of the disbursal targets of the year 2015-16 up to 30 September,’’ according to a note circulated among chief executives of the public sector banks before Finance Minister Arun Jaitley met the bankers on Monday. “`However, banks namely the Corporation Bank, Dena Bank, IOB , UCO Bank, SBI, State Bank of Patiala, State Bank of Hyderabad and the State Bank of Travancore have not achieved proportionate targets,” the note said.

Banks were given a target of 20 per cent growth in disbursement and 15 per cent growth in accounts for the current financial year.

Reserve Bank of India Governor Raghuram Rajan had, earlier this month at the Delhi Economic Conclave, raised a red flag over the increase in non-performing assets in education loans and said such loans should be devised in a flexible manner, providing options like automatic moratorium if borrowers were under a period of unemployment. He wanted guidelines on know-your-customer (KYC) to be made easier.

“There are lots of NPAs in the education sector. They have been rising in the last few years. It's a matter of concern,” Mr. Rajan said.

A student, under the educational loan scheme, can borrow up to Rs.10 lakh for domestic education and Rs.20 lakh for studying in foreign colleges. Borrowers need not pay during the tenure of the course and for an additional year. The repayment period is five to seven years.

For loans up to Rs.4 lakh, banks cannot demand any collateral. According to bankers, the maximum number of bad loans are in this segment.

Due to rising bad loans, the finance ministry, at the request of bankers, has created a credit guarantee fund for education loans. The Ministry of Human Resources has transferred Rs.351.09 crore to the corpus fund and Rs.112.05 crore may be transferred in the next week, according to the Finance Ministry.

It has also asked banks to integrate with the Vidya Lakshmi portal – which is a first of its kind portal providing a single window for students to access information and submit applications for educational loans to banks and for government scholarships.

While 24 banks have registered, only eight have integrated their system with the portal for providing loan processing status to the students. “All the remaining banks are requested to take steps to integrate with the portal,” according to the note.