Leading banks have submitted a joint proposal to the finance ministry for a revamp of their education loan models by including new disciplines such as sundry vocational training courses, para-medical and nursing as well as certain high-end segments like pilot training in the eligible category.
In parallel, they would also cease to fund students who get admissions to institutions under management quota. Further, the amount of loans for students of state-owned and private institutions would be standardised.
The bankers' move is in line with the government's policy to make more number of people entering the labour market employable through various skill development initiatives. It is estimated that given the huge investments being made in the countrys social and physical infrastructure, the demand for vocational courses would multiply in the coming years.
Although the new model would benefit students of diverse disciplines who are now getting little support from bank lending it could adversely impact private educational institutions, which charge very high fees, and their students. Sources said that if the same course is offered by a government institute and a private one, the loan amount would be bench-marked to the fee charged by the state-owned entity.
Currently, domestic banks have over R50,000 crore exposure to the educational loan segment.
Chief executive of Indian Banks Association (IBA) K Ramakrishnan said that banks have prepared a new model for this fast growing segment and have sent it for the approval of the ministry of finance.
IDBI Bank CMD RM Malla said the bank wants to be aggressive in granting educational loans. The idea behind the new model is to make this segment more broad-based, he said. There is a necessity to make the existing education loan schemes more transparent and broad-based so that a larger section of students can avail it for more disciplines. The government is also concerned about the rising sticky assets in the sector, Ramakrishna said. Finance ministry approval for the revamped education loan model is expected any moment, he said.
Pratip Chaudhury, chairman of State Bank of India, the market leader in the segment with over R11,000 crore exposure, has suggested that the government should guarantee educational loans. The new model prepared by IBA is the manifestation of bankers concerns on education loans, said Punjab National Bank CMD KR Kamath.
Cannara Bank CMD S Raman said that the educational loan is a priority area for the bank Our exposure in the sector is at R3,500 crore and our non-performing assets (NPAs) are less than 4% in the sector, he said. Earlier, loan amounts used to be comparatively lower. That is no longer the case now due to the huge increase in education fees in recent years. I believe, the model prepared by IBA will help us address these issues (high loan amounts and their recovery), said Raman. Standardisation of loans to courses offered by both government and private institutions is the result of IBAs realisation that state-owned professional institutes charge comparatively lesser fees although the students record a high percentage of placement. The trend is the reverse when it comes to privately owned institutions. In these cases, the repayment of loan becomes an issue. If a student has taken a large loan and is unable to get a job, obviously he will default, explained Ramakrishna. Standardisation of loan amount will also ensure that meritorious students will not be deprived of education loans. However, the interest rate for education loans, has to be fixed by the banks themselves.
While, banks are free to elongate the repayment tenure of the existing education loans and even increase the moratorium period on a case-to-case basis, they still have to ensure that they get repayment in a timely manner and that there is no further rise in NPAs, said Ramakrishna. Now, NPAs in the sector is hovering around 3%, which is a matter of concern for the government as well. To make the educational loan system more transparent, the new model proposes provision for grievance redressal cells, where student can take up issues like denial of loan, non-approval of loan in a time-bound manner and not getting the amount applied for. According to the latest Reserve Bank of India statistics, banking industrys total education loans have gone up by 19% to R43,710 crore as on March 2011. In 2009-10, the segment had seen a substantial growth of 28% to Rs 36,863 crore.