Education loans are turning out to be a headache for banks which are already under pressure due to rising bad loans. As much as 10 per cent — around Rs 7,900 crore — of the total education loan corpus of Rs 79,000 crore has been categorised as overdues, or active loans which are 90 days past due.
Banks can technically declare a loan which remains overdue for 90 days or more as a non-performing asset (NPA). Nearly seven per cent, or Rs 5,530 crore, of the education loan portfolio has already been declared as NPAs by the banks, figures revealed by CRIF, a credit information company, have said.
Significantly, the number of education loan disbursements have dropped sharply by 60 per cent between 2009-10 and 2014-15, seeing a gradual decline over years. “Although the government and the RBI have been urging banks not to sit on education loan applications, banks have been showing reluctance to extend loans to students. Private banks which are active in personal loans, auto and home loans are nowhere to be seen on the education loan front,” said a banking source.
Almost 95 per cent of the new loans are sanctioned by public sector banks, indicating the absence of private banks. The average loan amount (ticket size) has seen a gradual increase in the five-year period with banks reporting a 37 per cent rise in number of new loans disbursed in the Rs 10 lakh plus ticket size over the last five years and a much higher rise in Rs 20 lakh plus ticket size. “Higher NPAs are observed in loans up to Rs 4 lakh disbursed between 2009-12,” CRIF said.
In the interim Budget of 2014-15, the then finance minister P Chidambaram had announced a moratorium period for all education loans taken up to March 31, 2009, and outstanding as of March 31, 2013. Further, the RBI has also urged banks not to press for collateral in case of loans up to Rs 4 lakh. Loans to individuals for educational purposes, including vocational courses up to Rs 10 lakh, irrespective of the sanctioned amount, are considered as priority sector lending.
According to CRIF study, Hyderabad, Pune and Guntur have reported higher NPAs than the national average. While the top 25 districts cover 60 per cent of the outstanding portfolio, 15 of these 25 districts are in Tamil Nadu, accounting for 26 per cent of the total portfolio, CRIF said.
As there are 34 lakh education loans, fallout of 7-10 per cent default can impact credit score of over three lakh students. When they approach banks in the future, the default can put hurdles in getting more funds.