Banks zoom in on youth with educational loans

Public sector banks (PSBs) are increasingly focussing on the educational loans segment. Educational loan disbursement of domestic banks has zoomed 210 per cent to Rs 119.25 crore in 2004-05 compared with Rs 38.72 crore in 2003-04.

Number of students availing of the facility has also shot up to 9,552 from 2,881.

R Balakrishnan, executive director, Andhra Bank, said, "Educational loans are key to Andhra Bank as the segment helps add new and young students to the bank's customer base "" not to mention that the bad loans are quite small."

SK Goel, executive director, Allahabad Bank, said the bank was also looking at this portfolio to add new customers. He too felt non-performing asset in this segment was less than one per cent.

A senior official said banks started focusing on this segment seriously only two years back. In an attempt to provide educational loans at a lower rate, banks tie up with educational institutions, such as Indian Institutes of Management (IIMs), Indian School of Business (ISB) and local colleges.

Interest rate of these loans varies between 9 and 11 per cent and depends on the amount of the educational loan availed. On an average, a student avails of Rs 3-4 lakh as loan.

US Bhargawa, general manager, Punjab National Bank, said the interest rate is a little higher as the student starts paying the loan only after he or she completes the education. The banks charge only a simple rate of interest and not compounded rate.

According to Balakrishnan, students who go for studies abroad form a large chunk of customers "thereby giving an added advantage of opening non-resident Indians account with the bank".

Andhra Bank has sanctioned over Rs 250 crore in 2004-05 taking the total disbursements to Rs 780 crore. Almost Rs 550 crore was availed of by students pursuing professional courses and masters in business administration abroad.

Although the share of educational loan to the retail advances is just 2.84 per cent, it is a growing segment, remarks Goel.

"Punjab National Bank had disbursed about Rs 258.34 crore in 2004-05, an increase of 38 per cent over the last year. So far, total outstanding was Rs 483 crore," Bhargawa added.

"We have been focusing on education loans since 1997-98 and we have a liberal scheme with facilities such as lower interest rate, online sanction and a collateral-free advance of up to 4 lakh," Goel added.

Allahabad Bank disbursed Rs 48.55 crore during 2004-05 compared with Rs 38.95 crore in the previous year. The total outstanding was Rs 111.05 crore as on March 31, 2005.

Another public sector bank which has thrust on educational loans is Canara Bank. The bank charges an interest rate of 10.75 per cent up to Rs 4 lakh and above Rs 4 lakh it charges 11.75 per cent. The bank has no tie up with educational institutions.