FM takes care of students credit needs

Written by Kirtika Suneja | New Delhi | Updated: Mar 20 2012, 18:31pm hrs
The Credit Guarantee Fund proposed by finance minister Pranab Mukherjee in his Budget to serve the credit needs of students will replace the human resource development (HRD) ministrys plans for a National Education Finance Corporation (NEFC) for refinancing of education loans.

The NEFC, which was intended for the expansion of educational institutions as well as to offer refinancing facility for education loans, faced opposition from the Planning Commission on the grounds that the government is already making financial contribution to the education sector and that there is no need for establishing another independent body for the same. Besides, it also envisaged the creation of a Credit Guarantee Fund Resources for Education Loans to provide guarantees to the advances granted to students for acquiring higher education without obtaining any collateral security or third-party guarantees.

However, the corporation will no longer be required once the new fund is in place. In fact, the fund seeks to separate the guarantee and refinance parts to reduce the risk perception involved in education loans.

The NEFC will no longer be required as the fund will take care of the guarantee part. The Indian Banks Association (IBA) and finance ministry are working on the new fund and we think that the government will provide only a partial guarantee to students otherwise the banks might end up lending indiscriminately, said an HRD ministry official.

Under the present model, there is a maximum limit for education loan of R10 lakh for studies within the country and R20 lakh for studies abroad. As per the IBA, the public sector banks had sanctioned R15,207-crore education loans in 5.42-lakh accounts in the year ended 31st March. The amount of the disbursement was R11,200 crore during the year.

The fund seeks to tweak the guarantee part as education loan is a separate product in itself because while any other loan is repaid in a few years, this loan cant be repaid till the time the student is studying, the official added.

The fund is also a blessing for the public sector banks that often complain of default on loan repayment as there is no collateral involved. According to IBA, the total outstanding loans of public sector banks for education as on 31st March stood at R43,074 crore in more than 22 lakh accounts.