July 22, 2013 2:34:02 am
Despite the falling rupee,which parents fear could crimp their ability to finance education loans,the prospects are not bleak. Costlier dollar is making it necessary for those taking out loans to expand the ticket size. At the same time,loan seekers may soon find banks more willing to fund their higher education as the government is in the final stage of completing the modalities of the Credit Guarantee Fund for education loans. The scheme was announced by Pranab Mukherjee,the then finance minister in his budget speech for 2012-13. Industry experts feel that the credit guarantee fund will provide some comfort to banks while offering the loan to students,as they will then at least have majority of their exposure covered.
Even as the scheme details are being finalised,bankers say that it will be in line with the credit guarantee scheme for the micro and small enterprises where 75 per cent of the sanctioned amount of the credit facility is provided the guarantee cover and,for which,the banks may have to pool 1 per cent of the loan amount into the guarantee trust.
A senior State Bank of India official told that the scheme for the micro,small and medium enterprises is working well and has addressed banks concerns.
While there is enough demand for education loan,the banking system has not adequately addressed the demand within the segment and bankers feel that the credit guarantee scheme will lead to a growth in sanction of loans.
With the guarantee,banks will be in a better position to sanction more loans, said RK Bansal,executive director,IDBI Bank.
Not enough growth in education loans
According to the data available with the Reserve Bank of India (as per the RBI monthly bulletin of July 2013),the gross credit growth over the last 12 months (May 2012 to May 2013) rose by 14.8 per cent but the growth in education loan has been 10.2 per cent and the total outstanding for education loans stood at Rs 55,200 crore as on May 31,2013.
Against the education loans growth of 10.2 per cent,the growth of housing loans in the same period stood at 17.1 per cent and the vehicles loans registered a high growth of 27.6 per cent. Even the consumer durables segment witnessed a 22 per cent growth in the loan outstanding.
Lower growth rate on a smaller base clearly shows that education loan is not a focus area for banks as of now. Even bankers agree that the demand for educational loans far exceeds the actual disbursement. They have got further spooked as the costly dollar means people have to obtain larger loans while their own repayment capacity has declined with a growth slowdown in the economy for the last two years.
It is a risky product as sub Rs 4 lakh loans have no collaterals and there is no income back-up as the individual will first finish their studies and then seek a job. While banks do not push for it,the growth has been there because of the push from the government and the PSUs have to do it, said Harsh Roongta CEO,ApnaPaisa.com.
As on March 31,2013,39 listed banks reported a 36 per cent rise in gross NPAs to Rs 179,431 crore. This is 3.3 per cent of the total advances. Banking sources reveal that the NPA in the education loan segment stands at around 5 per cent and for some banks it is also touching double digit. Canara Bank has seen its education loans hitting an NPA of 9 per cent.
But rising NPAs cant be an excuse for banks to stop giving education loans and the state owned public sector banks have a clear message from the finance minister P Chidambaram who earlier stated that bank branches should not turn down any application from a deserving candidate and any such decision can be taken only by official at the next level.
Even the RBI governor,D Subbarao recently asked banks to give loans to eligible students.
Responsiveness over the last two to three years has actually improved. So most students are now getting education loan but that is not good enough. All eligible students ideally should get education loans, said Subbarao.
Public sector banks seem to be following the diktat. We have given clear instruction at the branch level that they should not reject applications and if they are not satisfied with the documents,they have to sent the application at the regional office, said Ram S Sangapure,GM,retail banking at Central Bank of India. Even as NPAs are high,we have continued with the growth and there is no shrinkage of portfolio.
The official said that they are encouraging branches to give education loans and several banks are even offering special schemes for institutes such as IITs and IIMs.
How will credit guarantee fund help?
As of now,individuals can seek an education loan up to Rs 4 lakh from banks without providing any collateral or guarantor and bankers say that this is the segment that is witnessing the maximum defaults. For loans between Rs 4 lakh to Rs 7.5 lakh,banks call for a third party guarantee and in case of loans above Rs 7.5 lakh,banks ask for a collateral security against the same.
The maximum default on education loans are happening in the loan category of up to Rs 4 lakh. There are very few defaults in the category above Rs 4 lakh and Rs 7.5 lakh where there is a collateral or in cases where the loan has been given for funding education into IIMs, said a senior banker who did not wish to be named.
Once the credit guarantee fund is in place,even if the banks do not have collateral against the loans,they will have a guarantee from the fund to recover a certain per cent of their loan amount and thus will be more
willful to offer loans in the sub
Rs 4 lakh category.
Bankers also say that the credit guarantee scheme may provide the required thrust to the segment. There is demand in the market and once the scheme comes it may lead to more students being able get the loan and go for higher education, said Bansal.
Sangapure feels that it will provide bankers with some level of comfort while giving loans,Roongta says that credit guarantee fund may be the biggest factor that may help the growth of more loans being given in the segment.
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