LOW-VALUE education loans (up to Rs 7.5 lakh) constitute a bulk of the defaults in the education loan portfolio of banks, according to data accessed by The Indian Express.
Data on Non-Performing Assets (NPAs) in education loans of Public Sector Banks (PSBs), obtained through the Right to Information Act, show that the default rate is much lower for loans disbursed to students in premier institutes as compared to those in secondary institutes.
About 239 institutes like the IITs, IIMs, NITs and AIIMS are categorised as premier institutes by banks.
According to the data, 4.7 per cent of the total education loans disbursed by the State Bank of India, Canara Bank, Union Bank of India and Indian Overseas Bank have turned into NPAs. In contrast, of the total education loans to students in premier institutes, about 0.45 per cent turned into NPAs. These four banks together constitute about 65 per cent of the total loan portfolio of PSBs.
Overall, about 8 per cent of all education loans disbursed by 12 PSBs, where repayments have started, have turned into NPAs.
For education loans, students get a moratorium period of up to 12 months after they complete their studies. So, for a four-year BTech course, the repayment starts only after the completion of the fifth year if the student fails to get a job. The repayment starts early if the student starts earning.
Following the high rate of defaults in low-value education loans of PSBs, banks have slowed such lending, impacting students enrolled in secondary institutes across the country.
PSBs are the largest lender in the education loan sector and have a market share of about 91 per cent – RRBs (regional rural banks) and private banks constitute the remaining 9 per cent of the market.
Industry insiders told The Indian Express that defaults in the lower band education loans are becoming a concern for banks, which may not be looking to expand their loan portfolio by providing credit to low-value loans.
“High defaults are being reported in low-value loans (up to Rs 7 lakh). Banks are not willing to lend to that segment as liberally as they were doing earlier. This unwillingness by banks to lend to that segment will continue and they may compensate by opting for high-value loans, which are relatively secure,” said an industry observer who did not want to be named.
Another observer said defaults in the low-end segment may have aggravated post-Covid. “The issue of joblessness among students passing out of medium-level institutes has aggravated post-Covid, leading to such a situation,” he said.
Meanwhile, the government has expressed concern over the slowdown in disbursal of education loans. The department of financial services had called a meeting of these banks in August to ask them to expedite loan disbursal, citing complaints received from various quarters, including the Prime Minister’s Office and VIPs, about delay in sanction and denial on flimsy grounds.
Banks, however, may not be willing to increase credit in the below-Rs 7.5 lakh loans. According to the model loan scheme, education loans of up to Rs 4 lakh don’t require any collateral to be provided by the borrower, education loans of up to Rs 7.5 lakh can be obtained with collateral in the form of suitable third-party guarantee, and education loans above Rs 7.5 lakh require tangible collateral. In all these cases, co-obligation of parents is necessary.
