Most of the students are taking admission in engineering and management courses due to boom in the IT and service industry. But amidst this the banks are going slow in sanctioning the educational loans, which are considered priority loans and where no collateral is supposed to be furnished for loans up to Rs four lakh. In spite of an unofficial diktat issued by the government to the PSU banks for fast lending in order to revive spending in the economy.
The manager of an Indian Overseas Bank branch in the city said in this regard that bankers' are unwilling to grant loans due to a rise in incidence of defaults on educational loans. "There is going to be a sub-prime even in educational loans," he said, on condition of anonymity. He added that almost 25% of the NPAs (non-performing assets) of his branch are educational loans.
The manager referred to an instance of default by a well-to-do student. He recollected how he had visited the student's house in a posh locality two years after the loan period ended. "The boy's father simply told me that there was no way his son could repay the loan as he had not got a job yet." Interestingly, the beneficiary was at home at that time but refused to show his face to the manager. "Neither the family nor he have even paid the interest," fumes the manager.
On the other hand the finance ministry had instructed nationalized banks to lend educational loans to deserving and meritorious students but bank managers state they are not able to give educational loans to every customer including those who have an account with the bank.
Banks normally follow according to uniformity of marks obtained by students in class Xth and class XIIth examinations before giving out the loan. In normal course PSU banks give loans to meritorious students and in cases where the course as well as the institution offering the course is approved by respective agencies. "We ascertain if the student in question is capable of finishing the course and getting employed. Only then do we disburse the loan," says a senior manager from Indian Overseas Bank (IOB) who did not want to be named.
Apart from educational loans, banks have got cautioned in case of retail lending in the current conditions. "We are giving retail loans to those people who have a salary account with IOB. We are basically interested in timely repayment. Sometimes, we also look at past records of the customer before finalizing the loan," added the IOB official.
Some bank officials are of view the slowdown in retail lending is also because there is not much demand. "Customers are waiting for further fall in prices in real estate and cars. Hence there is not much demand for home and car loans at the moment," said
Some other bank officials uphold that giving of retail loans is a function of the bank's credit deposit ratio (CDR). CDR is the proportion of loan assets created by banks from deposits received. R Venkataraman, chairman and chief executive officer, Catholic Syrian Bank said, "We have a healthy CDR at the moment, so we are bullish about retail lending".
