Banks which had stopped extending education loans to students who were taking admission through management quota may have to revisit the issue following Finance Minister P Chidambaram’s comments.
Following a surge in non-performing assets arising out of education loan portfolio, bankers were cautious in extending loans to this segment. As a result, students who were taking admission through management quota and were asking for education loans were instead offered personal loans.
Interest rates on personal loans are much higher compared with education loans.
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“If someone is getting admitted through management quota, then the admission is not on merit. As a result, the risk perception is higher for such loans. Hence, we offered personal loans and not educational loan that is priced lower,” said a banker.
However, during recent interaction with bankers, Chidambaram highlighted that even if a student is taking admission through management quota, that does not mean the person has no merit. According to bankers, the finance minister asked them not to deny study loan to any student.
At the press conference after meeting the bankers, Chidambaram said study loan is a right to every student.
“Bank account is a right of an individual. It is not a gift of a bank and bank loan is a right of every student … No application from a deserving candidate, if he/she meets the parameters, should be turned down by the (bank) officer receiving it. If a loan is not given, the decision can be taken only at one level higher to the officer receiving the loan application,” Chidambaram said.
Banks had requested the government to create a credit guarantee fund for educational loans, on the lines of the Credit Guarantee Fund Trust for Micro and Small Enterprises, jointly set up by the government and Small Industries Development Bank of India.
Though the education loan scheme was started in 2001, it received a boost during Chidambaram’s earlier tenure as finance minister.
According to the present scheme, for domestic education, loans up to Rs 4 lakh is a clean loan while banks ask for guarantor for loans above Rs 4 lakh and up to Rs 7.5 lakh, and ask for collateral for loan above Rs 7.5 lakh and up to Rs 10 lakh. Borrowers need not pay during the tenure of the course plus one year after. The repayment period is five to seven years.
According to rough estimates, the study loan portfolio is about Rs 50,000 crore in the country, of which five per cent has become non-performing. Earlier, bankers had requested the central bank for regulatory relaxation to recast study loans, which was turned down. State Bank of India is the market leader in the education loan segment with 33 per cent market share.
