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Government to banks: Complaints, give more education loans

An official source said the issue was discussed in a meeting held last week by the Department of Financial Services (DFS) and involving representatives of all 12 PSBs.

Banks were told that the department has received a lot of complaints from a range of quarters, including the highest levels in the Government. (Representational)

With Public sector banks (PSBs) wary of disbursing low-value education loans claiming defaults, the Government has asked them to increase disbursement, citing several complaints received from various quarters on delay in sanction and denial on “flimsy grounds”, The Indian Express has learnt.

An official source said the issue was discussed in a meeting held last week by the Department of Financial Services (DFS) and involving representatives of all 12 PSBs. Banks were told that the department has received a lot of complaints from a range of quarters, including the highest levels in the Government. “They were asking to increase education loan disbursement,” said the source.

The banks were told to disburse education loans within the stipulated time of 15-30 days, not to deny loans on “flimsy grounds”, such as CIBIL score of co-borrower and non-eligibility of courses, and not to seek collateral security for such loans up to Rs 7.5 lakh.

Banks were also asked to guide education loan seekers on the Central Sector Interest Subsidy Scheme for students with an annual family income of up to Rs 4.5 lakh.

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The Union Finance Ministry and Department of Financial Services did not respond to emails from The Indian Express seeking comment.

The banks say the latest push will put pressure on their balance sheets (see chart), as Non-Performing Assets (NPAs) in education loans are rising due to defaults in smaller loans (up to Rs 7.5 lakh).

“Defaults are rising in these smaller-sized loans since these freshers are not able to fetch jobs as easily as earlier and, hence, banks brought these rules to ensure some collateral in case of defaults,” said a banker, who did not want to be identified.

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According to data updated till June 30, 2022, about 8 per cent of education loans disbursed by PSBs have turned into NPAs. Of the Rs 79,900 crore in education loans disbursed, about Rs 6,246 crore have turned bad.

In contrast, gross NPAs in the banking sector dropped below 6 per cent as of March 2022 — the lowest since 2016 — even as net NPAs fell to 1.7 per cent during the same period, M Rajeshwar Rao, deputy governor of Reserve Bank of India, had said in July.

Among PSBs, Indian Bank topped the NPA chart with over 29 per cent of their education loans turning bad, followed by UCO Bank with over 18 per cent.

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Of the 12 banks, six of them have defaults running in high double digits. Notably, State Bank of India and Canara Bank, which handle about half of the total education loan portfolio of PSBs, have lower NPAs of 2.23 and 3.88 per cent, respectively.

“It is alarming that 8 per cent of the total loans for education have turned bad, and it is a concern,” one of the bankers said.

The Government has a target for PSBs to provide over Rs 20,000 crore in education loans for the current fiscal, with banks to achieve 19 per cent of the target by the end of the first quarter. About 90 per cent of the education loans in India are disbursed by PSBs.

Despite the pandemic impacting physical classes, demand for education loans remained high during the Covid period.

Data from CRIF High Mark, an RBI-approved credit bureau, showed that the bulk of disbursal happened through the pandemic period with more than 3 lakh new borrowers signing up for education loans between March and October 2020. There was also a disbursement of Rs 11,000 crore loans by education companies till September-end, according to data released by the bureau in March 2022.

First published on: 01-09-2022 at 04:15:14 am
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