Education loans add to banking sector’s NPA problem
Education loans add to banking sector’s NPA problem
Education loans add to banking sector’s NPA problem
July 31st, 2017
​Banks and other lenders together disbursed around Rs 20,000 crore in education loans in FY17, up from around Rs 17,000 crore a year ago, while total outstanding grew 1.6 per cent to Rs 81,600 crore. 
 

Ramya Venkatesan, a student who recently applied for education loan was allegedly turned away on a routine basis by the manager on the ground that her college did not fall within the service area of the branch.It may be true that the banks have a policy on granting education loans but at the same time the banks invariably insists on collateral security.The surge in education loan defaults is turning out to be a headache for banks, which are already under pressure over rising bad loans.The increase in non-performing loans in the education loan segment came at a time when hiring for fresher jobs has slowed down and tech companies have begun laying off employees. Consequently, while an increasing number of students have taken education loans, many have failed to repay. According to some estimates, the total non-performing assets (NPAs) in education loans have spiked by over 140 per cent in the past three years.

 ​In the education segment, NPAs or loans on which borrowers have defaulted on payments for more than the stipulated 90 days, stood at Rs 6,336 crore at the end of December 2016, against Rs 2,615 crore in March 2013, the RBI has revealed.

Around 60 per cent of education loans were taken by applicants in the southern states, which have also reported most defaults. Students from Kerala, Karnataka and Tamil Nadu are in the forefront of taking loans, said an official of a nationalised bank.However, according to a recent report by credit information company Crif High Mark, banks and other lenders together disbursed around Rs 20,000 crore in education loans in FY17, up from around Rs 17,000 crore a year ago, while total outstanding grew 1.6 per cent to Rs 81,600 crore. 

The report also noted that virtually, all the other segments in retail lending, excluding agriculture -- considered resilient and a refuge for banks in face of high NPAs in their corporate loan books -- have shown very low NPAs.

In an objective to have universal access to financing, the concept of disbursing education loans was pushed the most by former finance minister P Chidambaram when the United Progressive Alliance government was in power. RBI has also been highlighting the pitfalls in the student loans and the then Governor Raghuram Rajan had flagged issues in May 2016.​

The New Indian Express