Credit guarantee fund for educational loans on the cards

In case of a default on the education loan,the respective bank would be able to dip into this pool, a senior finance ministry official said,confirming the development. The initial pool would be created by contributions from the bank and government. With time,the contributions from the borrowers would increase the pool.

Several senior bank officials have been continuously raising concerns over the increasing number of NPAs on educational loans.

We have been interacting with finance ministry for the last three years for creation of a CGF. We are expecting some announcement in this Budget,said an IBA official. The defaults,according to industry insiders,is mainly in the educational loan category of below Rs 4 lakh which are free of any collateral.

It has also been suggested that the repayment period be increased to 10-15 years from the current 5-7 years to make it more flexible for the borrower.

If we can show that these loans are 80-100 per cent guaranteed by the government and any shortfall would be met by them then the capital requirement would fall by 75-80 per cent,thus freeing up a reasonable amount of money, State Bank of India chairman Pratip Chaudhuri had earlier told The Indian Express.