High defaults of around 8% in the education loan portfolio has put PSB banks on alert.
• Current loan disbursement target for FY23 set at ₹20,450 for 12 PSBs: Report
The education loan disbursement target of India's Public Sector Banks (PSBs) has seen a decline in the current financial year due to a rise in defaults. According to a report in Indian Express, the education loan disbursement target for PSBs has been set at about 13.5% lower than the total disbursement by scheduled banks in the last financial year.
The current loan disbursement target for FY23 has been set at ₹20,450 for 12 state-run banks. In FY2020-21, the daily added target was ₹23,640.
High defaults of around 8% in the education loan portfolio have alerted PSB banks and go slow on sanctioning such loans. This move may have an impact on private banks which may increase the interest rate.
The non-performing assets (NPAs) in the education loan category, including Public Sector Banks (PSBs), stood at 7.82% at the end of June quarter of the current financial year. The outstanding education loan at the end of June stood at around ₹80,000 crore.
A bank official told PTI news agency last month that a cautious approach is adopted at the branches end while sanctioning education loans due to high NPAs.
Also, in September this year, the finance ministry convened a meeting of PSBs to take stock of the education loan portfolio and reduce delays. The ministry asked banks to spread awareness about the Central Sector Interest Subsidy Scheme among field formations.
In India, around 90% of education loans are disbursed by PSBs. As of the end of March 2020, the outstanding to private sector banks and regional rural banks (RRBs) was around 7% and 3% of total education loans, reported PTI news agency.
Banks have been slow in achieving this target and by the end of June 2022, public sector banks were able to deliver 19% of the total target. The record was disappointing for small-sized loans (loans up to ₹7.5 lakh) as banks were witnessing a large number of defaults in that category.
According to Jyoti Prakash Gadia, Managing Director, Resurgent India, new job creation has not kept pace with the number of graduates turning out from colleges, which has adversely affected the timely repayment of education loans.
As a result, NPAs have gone up and banks are hesitant to give fresh education advances, especially loans up to ₹7.50 lakh, which are without any collateral and third-party guarantees, he said.
Most of the banks offer a scheme for education loan to students pursuing higher studies in India and abroad as per the Indian Banks' Association (IBA) Model Education Loan Scheme.
As per this model loan scheme, education loan up to ₹4 lakh does not require any collateral by the borrower, education loan up to ₹7.5 lakh can be availed with collateral in the form of suitable third-party guarantee , while education loans above ₹ 7.5 lakh require tangible collateral. In all the above cases, co-obligation of the parents is necessary.
The second category of education loan is sanctioned to students who get admission in colleges/universities through management quota, provided they fulfill the criteria of minimum marks in the previous examination.
The third category of education loan is for needy students to pursue vocational education courses run by Industrial Training Institutes (ITIs), Polytechnics, training partners affiliated to National Skill Development Corporation (NSDC) / Sector Skill Councils, State Skill Missions / Corporation Includes plans for As per National Skill Qualification Framework (NSQF) and Central or State Board of Education or any other institution recognized by the University leading to Certificate/Diploma/Degree issued by such organization.
The fourth category of the scheme specifically caters to the need of students pursuing courses in premier institutes like IITs/IIMs/NITs/IISc or abroad, demanding higher quantum of loan amount. All education loans up to ₹10 lakh (enhanced to ₹20 lakh in September 2020) have been included in the definition of priority sector by the Reserve Bank of India.
PSBs are reporting higher default percentage in the education loan segment. IE notes that out of ₹79,900 crore in education loans disbursed, about ₹6,246 crore has gone bad as of June 2022.
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