The growth in banking sector?s lending to education sector has slowed down to 40% on a year on year basis till February 2008 at Rs 5,938 crore from a much impressive 55% a year back for the same period.
Banks said that the slowdown was due to the overall increase in interest rates and a rising non re-payment of loans. Total credit growth slowed down to a mere 22% in 2007-8 as compared to 30% in the previous year.
Total lending towards the sector stood at Rs 5,170 crore in 2006-07. Typical interest rate for educational loans charged by the public sector banks is around 11.5%.
Demand for education loan is expected to double in the next couple of years, riding on the recent fee hike.
The Standing Committee of Indian Institutes of Technology Council (SCIC) has already recommended an increase in fee to Rs 50,000? a 100% increase from the present Rs 25,000. However, the government has said that though the SCIC has recommended an increase in tuition fees for B.Tech and M.Tech courses, the quantum of the exact jump is yet to be decided.
Similarly, the IIMs are also planning to increase their fees significantly. IIM-Ahmedabad was looking at increased its fee for its two-year course to Rs 11.5 lakh from Rs 4.5 lakh.
In addition, there would be a huge demand for advances from the field of vocational education, like flying, hotel management, film editing among other things. At present, there is not much demand for
loans for these vocational courses.
Total outstanding for education credit as on February 15,2008 is estimated at a mere Rs 20,471 crore.
?Indians are not averse to taking loans for education and going ahead the demand would significantly increase especially from consumers from tier II cities,? a industry analyst said.
It may be noted that finance minister P Chidambaram has already directed the public sector banks to increase lendings to students, wishing to take loans.