Rakesh Patel, 24, is ecstatic since his education loan for R3.5 lakh was cleared, after a leading public sector bank sat on it for over four weeks. Patel intends to finish post-graduation programme in film production from a professional institution in Mumbai.
But bankers are less happy about extending education loans. In a tough macroeconomic situation, where jobs are difficult to find, a large number of education loan borrowers are not able to repay loans on time. Students who apply to courses like nursing, information technology (IT), films and television, form the bottom of the list for bankers, when giving out education loans.
In the current financial year, public sector banks have already reported significant hit on their asset quality across sectors and the education loan portfolio is not expected to be exempt from this.
“We cannot say no to students asking for an education loan. The government is directly involved and if a loan is denied, it can have serious repercussions,” says a public sector banker.
A major part of the bad loans in education loans come from loans in the R4 lakh or less category. Since these loans have been granted priority sector status, students do not require any collateral to avail them.
About 75% of the R2,600 crore worth education loan portfolio for Central Bank of India consists of loans below R4 lakh. Gross NPAs for the portfolio stand at 3.5%, according to Ram Sangapure, general manager, retail.
Similarly, for Union Bank of India, which has an education loan portfolio of R2,076 crore, bad loans form close to 5%, says general manager Pravin Bansal.
To ensure that education loans are repaid on time, bankers have taken several steps. One of them includes, giving jobs to qualified but unemployed borrowers.
“We have suggested regional managers to consider employing some of these young borrowers as business correspondents. We may not be able to pay as much as they expect, but this will help them earn something and repay their education loan,” Sangapure said.
Most banks now require parents to become co-borrowers with students, while applying for an education loan. Students are also required to give their PAN cards with the loan request, so that it becomes easier to track them down, in case of any delay in payments.