On Monday Finance Minister Pranab Mukherjee announced the tax deduction benefit on interest paid on education loan for legal guardian of the student under Section 80E of the Income Tax Act.
Previously under Section 80E of the Income Tax Act, the individual who has taken the education loan was eligible for the benefit at the time of loan repayment.
According to tax experts the new ruling is a logical step. Vikas Saval, executive director, KPMG, pointed out in India children have a strong family support; in most cases parents or legal guardians support their children’s education and repay the education loans. Thus it is logical to extend the tax deduction benefit to the parents in case they are repaying the education loan of children.
Jayesh Shangvi, tax partner, Ernst & Young, said, “In many cases, if an individual taking education loan doesn’t get a job, his parents or legal guardian, being the guarantor for the loan, had to repay the loan. So, it’s a welcome move from the government.”
Shailendra Kumar, editor, of Taxindia.com, said government has taken a positive step and several lakh people will be benefited, who will be able to avail tax deduction on repayment of loans taken for their children’s education. He further added, “The government’s move to extend the benefit to legal guardian and not just parents makes Section 80E all the more beneficial”.
In the Union Budget this year, the finance minister had earlier announced the tax benefits under Section 80E to all vocational courses after SSC or equivalent.
Previously the benefits were extended to full-time graduates or post-graduate courses in medicine, engineering, or management, or post-graduate courses in applied sciences or pure sciences, including mathematics and statistics.
In the current financial year for the first two months, banks have given Rs 7,338 crore as education loan, a growth of 34 per cent over the same period last year. PSU banks are the major players in the education loan segment have disbursed Rs 27,645 crore during 2008-09.
Friday, July 31, 2009
Monday, July 27, 2009
Banks look forward good business in education loan
Geebee Education, the consultant had organized an education loan mela in Mumbai and was surprised to get calls from so many banks beyond their expectations. Earlier when they had contacted banks only eight of them had confirmed their participation, but 13 turned up which made it difficult for the organizers to arrange space for the extra ones.
However the public sector banks are the leaders in education loan business.
But in the mela only few prospective borrowers turned up. The organizers believe it is due to rain for low turn up, moreover this year there has been decline in the number of Indian student going abroad due to the global recession. Around 250-300 prospective students turned up at the mela, although organizers had expected at least 500 students.
In the loan mela there were many options available. According to one of the prospective borrower Shikha Mutreja looking for an education loan to fund a master’s program at the School of Oriental and African Studies in London, was surprised to find wide choice at the loan mela.
A senior State Bank of India (SBI) executive, who handles retail credit, pointed out, "There is no significant change in business volumes (for educational loans) this year. The domestic demand will get a fillip when the new IITs and IIMs go on stream."
Loan mela banks made a good business as educational institutions in some countries have simplified funding norms for students. In the wake of attacks on Indians very few students are interested to go to Australia, thus colleges and universities of UK and Canada have opened their doors for Indian students. Now the Canadian educational institutions are not looking at the bank balance of the student and his/her parents, but are welcoming 100 percent loans. Geebee Director Vinayak Kamat informed UK too is allowing 100 percent financing.
Even the banks have eased the norms for educational loan but students are not borrowing more than 85% of the cost if they are going abroad. Kamat informed for studying at local colleges the loan amount being borrowed is about 95% of the value of the loan. Regarding interest rates in case you take admission in an IIM banks will charge 11% a year, whereas for a second-rung B-school the interest rate will stand to 14%.
However some students have complained still many banks deny loans to fund education at lower-rung institutes in India. Bank chiefs giving clarification on their part say that the situation has improved immensely, partly because of the pressure put on by the Reserve Bank of India (RBI) and the government.
A branch manager with a medium-size public sector bank, pointed out, “Often branch-level staff are not inclined to drive this business since these are smaller in value. Instead, they prefer to deal with companies’ working capital requirements, which involve less time and effort. But we are trying to ensure a change in this attitude”.
As a matter of fact banks have started realizing that recession or no recession, education loans are a low-risk business. For education loans above a certain value, public sector banks ask for a guarantor, other than student’s immediate family member. Even for the loans above Rs 12-15 lakh, collateral is required. In case of private banks, such as HDFC Bank, the student is the first applicant, while his/her parents are the co-applicant. “Even if the student is unable to pay, our repayments are not affected,” stated a bank executive at the loan mela.
Bank executives, informed in spite of the recession, in most cases students have repaid their loans that too ahead of schedule, typically in two-three years. According to Union Bank of India Chairman and Managing Director M V Nair, “Competition has increased as banks have realized that this is a good business since the risk of default on such loans is minimal. Our educational loan book has grown annually by 40-45 per cent for the last four years”.
SBI executive informed, “While giving a loan to a student, our intent is not just to get immediate business. We look at them as clients for the long term, be it overseas or in India”, while SBI has reported a 50 per cent jump in its education loan portfolio of about Rs 6,600 crore by the end of March 2009.
Seeing an opportunity, two years ago few of private sector lenders have also jumped into the business, while foreign players, such as Citi, are concentrating on big-ticket loans. Currently the public sector lenders are more active. Their outstanding portfolio of educational loans has registered a rise by 39.51 per cent to Rs 27,645.58 crore as on March 2009 as against Rs 19,816.54 crore a year ago. Even there has been increase of 28.59 per cent to 1.6 million in FY09 in the number of students availing loans as against 1.25 million a year ago.
Most of the Indian students prefer US, Australia, the UK, Canada and New Zealand and 90 per cent of them apply for an education loan. According to consultants the education scenario is quite different in the US this season as the recession had a great impact on the job scenario and any improvement is expected only in 2011. Thus education consultants are of view that parents should put off their loan plans for few months.
One of the students Ravina Nair, who is looking to pursue a three-year hotel management course in the UK said, “By the time I complete my education, things would have changed. Besides, it depends on the student”. “I have spoken to my friends in the UK. Not only have they found jobs, but they are also looking to pre-pay their loans,” added Suhail Kazi. Besides, a Canara Bank executive informed that banks, especially public lenders, are giving relaxation and restructuring loans.
He stated, “While it is up to the branch manager to decide, we are giving more time to those who have not found jobs and are, therefore, finding it difficult to repay”. “It (the recession) could work in two ways. Some may think to study for two years and by the time they complete their courses, the economic environment could improve. And, some others may postpone their plans for overseas education as a cautious response to the uncertain economic climate,” stated Union Bank’s Nair.
However the public sector banks are the leaders in education loan business.
But in the mela only few prospective borrowers turned up. The organizers believe it is due to rain for low turn up, moreover this year there has been decline in the number of Indian student going abroad due to the global recession. Around 250-300 prospective students turned up at the mela, although organizers had expected at least 500 students.
In the loan mela there were many options available. According to one of the prospective borrower Shikha Mutreja looking for an education loan to fund a master’s program at the School of Oriental and African Studies in London, was surprised to find wide choice at the loan mela.
A senior State Bank of India (SBI) executive, who handles retail credit, pointed out, "There is no significant change in business volumes (for educational loans) this year. The domestic demand will get a fillip when the new IITs and IIMs go on stream."
Loan mela banks made a good business as educational institutions in some countries have simplified funding norms for students. In the wake of attacks on Indians very few students are interested to go to Australia, thus colleges and universities of UK and Canada have opened their doors for Indian students. Now the Canadian educational institutions are not looking at the bank balance of the student and his/her parents, but are welcoming 100 percent loans. Geebee Director Vinayak Kamat informed UK too is allowing 100 percent financing.
Even the banks have eased the norms for educational loan but students are not borrowing more than 85% of the cost if they are going abroad. Kamat informed for studying at local colleges the loan amount being borrowed is about 95% of the value of the loan. Regarding interest rates in case you take admission in an IIM banks will charge 11% a year, whereas for a second-rung B-school the interest rate will stand to 14%.
However some students have complained still many banks deny loans to fund education at lower-rung institutes in India. Bank chiefs giving clarification on their part say that the situation has improved immensely, partly because of the pressure put on by the Reserve Bank of India (RBI) and the government.
A branch manager with a medium-size public sector bank, pointed out, “Often branch-level staff are not inclined to drive this business since these are smaller in value. Instead, they prefer to deal with companies’ working capital requirements, which involve less time and effort. But we are trying to ensure a change in this attitude”.
As a matter of fact banks have started realizing that recession or no recession, education loans are a low-risk business. For education loans above a certain value, public sector banks ask for a guarantor, other than student’s immediate family member. Even for the loans above Rs 12-15 lakh, collateral is required. In case of private banks, such as HDFC Bank, the student is the first applicant, while his/her parents are the co-applicant. “Even if the student is unable to pay, our repayments are not affected,” stated a bank executive at the loan mela.
Bank executives, informed in spite of the recession, in most cases students have repaid their loans that too ahead of schedule, typically in two-three years. According to Union Bank of India Chairman and Managing Director M V Nair, “Competition has increased as banks have realized that this is a good business since the risk of default on such loans is minimal. Our educational loan book has grown annually by 40-45 per cent for the last four years”.
SBI executive informed, “While giving a loan to a student, our intent is not just to get immediate business. We look at them as clients for the long term, be it overseas or in India”, while SBI has reported a 50 per cent jump in its education loan portfolio of about Rs 6,600 crore by the end of March 2009.
Seeing an opportunity, two years ago few of private sector lenders have also jumped into the business, while foreign players, such as Citi, are concentrating on big-ticket loans. Currently the public sector lenders are more active. Their outstanding portfolio of educational loans has registered a rise by 39.51 per cent to Rs 27,645.58 crore as on March 2009 as against Rs 19,816.54 crore a year ago. Even there has been increase of 28.59 per cent to 1.6 million in FY09 in the number of students availing loans as against 1.25 million a year ago.
Most of the Indian students prefer US, Australia, the UK, Canada and New Zealand and 90 per cent of them apply for an education loan. According to consultants the education scenario is quite different in the US this season as the recession had a great impact on the job scenario and any improvement is expected only in 2011. Thus education consultants are of view that parents should put off their loan plans for few months.
One of the students Ravina Nair, who is looking to pursue a three-year hotel management course in the UK said, “By the time I complete my education, things would have changed. Besides, it depends on the student”. “I have spoken to my friends in the UK. Not only have they found jobs, but they are also looking to pre-pay their loans,” added Suhail Kazi. Besides, a Canara Bank executive informed that banks, especially public lenders, are giving relaxation and restructuring loans.
He stated, “While it is up to the branch manager to decide, we are giving more time to those who have not found jobs and are, therefore, finding it difficult to repay”. “It (the recession) could work in two ways. Some may think to study for two years and by the time they complete their courses, the economic environment could improve. And, some others may postpone their plans for overseas education as a cautious response to the uncertain economic climate,” stated Union Bank’s Nair.
Monday, July 13, 2009
PE investors plans to increase investment in education sector
The budget presented by finance minister failed to boost stock market but his proposals on education sector have raised the expectations of increase of private equity investment.
In the budget series of measures have been proposed like educational loan interest subsidy, scholarship for college and university students, national mission in education through information and communication technology and Rashtriya Madhyamik Shiksha Abhiyan.
Rajesh Singhal, Managing Partner – Private Equity, Milestone Capital Advisors stated, “The budget proposals are for enabling private participation in education where private players can play a significant role in expanding the sector. The FM tried to bring transparency and clarity into regulatory framework in education.”
Milestone seems to be interested in investing in private companies which have interest in schools, higher education and vocational training as well as in tutorials having wide presence. For them, the company has set an average investment ticket size of Rs 50-60 crore with 2-3 years time period.
Approximately, PE investment in Indian education at present is $350 million. This is expected to grow by 20-30 per cent. This will also help in generating employment in this sector. There are expectations that the private sector spending might grow at CAGR of 15 per cent to $80 billion in 2012.
According to Sunil Shirole, Managing Director & CEO, YEN Management Consultant, who is currently mediating with 10-12 domestic PE investors to strike deals in education sector, “The budget proposals have definitely improved the sentiment among domestic PE investors who will now be closely looking for its proper execution. However, a mention about FDI in education sector would have made budget proposal much better”.
The ticket size of these deals will vary from $5 million to $100 million. The investment will probably be made through special purpose vehicles (SPVs), formed by the PE investor and educational trust. The SPV might later opt for public issue once business grows.
As per industry sources, the educational loan interest subsidy scheme will persuade educational trusts to associate themselves with private limited companies in order to attract PE investments for expansion. At present, PE investors are not able to invest in educational trust due to tax complications.
An official working with a financial advisory arm of a big 4 accounting firm informed, “Mostly vocational and non-technical educational trusts will go for forming strategic alliances with private limited companies to woo PE investors to support their future expansion plans. There is huge potential for investment in this field”.
In the budget series of measures have been proposed like educational loan interest subsidy, scholarship for college and university students, national mission in education through information and communication technology and Rashtriya Madhyamik Shiksha Abhiyan.
Rajesh Singhal, Managing Partner – Private Equity, Milestone Capital Advisors stated, “The budget proposals are for enabling private participation in education where private players can play a significant role in expanding the sector. The FM tried to bring transparency and clarity into regulatory framework in education.”
Milestone seems to be interested in investing in private companies which have interest in schools, higher education and vocational training as well as in tutorials having wide presence. For them, the company has set an average investment ticket size of Rs 50-60 crore with 2-3 years time period.
Approximately, PE investment in Indian education at present is $350 million. This is expected to grow by 20-30 per cent. This will also help in generating employment in this sector. There are expectations that the private sector spending might grow at CAGR of 15 per cent to $80 billion in 2012.
According to Sunil Shirole, Managing Director & CEO, YEN Management Consultant, who is currently mediating with 10-12 domestic PE investors to strike deals in education sector, “The budget proposals have definitely improved the sentiment among domestic PE investors who will now be closely looking for its proper execution. However, a mention about FDI in education sector would have made budget proposal much better”.
The ticket size of these deals will vary from $5 million to $100 million. The investment will probably be made through special purpose vehicles (SPVs), formed by the PE investor and educational trust. The SPV might later opt for public issue once business grows.
As per industry sources, the educational loan interest subsidy scheme will persuade educational trusts to associate themselves with private limited companies in order to attract PE investments for expansion. At present, PE investors are not able to invest in educational trust due to tax complications.
An official working with a financial advisory arm of a big 4 accounting firm informed, “Mostly vocational and non-technical educational trusts will go for forming strategic alliances with private limited companies to woo PE investors to support their future expansion plans. There is huge potential for investment in this field”.
Tuesday, July 7, 2009
Students, parents welcome new scheme announced in budget
In the Union budget of 2009 FM Pranab Mukherjee has announced a new scheme called ‘Interest Subsidy on Education Loans' which has brought smile on the faces of students who are seeking educational loans. Under this scheme there will be no interest on loan for higher studies.
In this scheme the entire interest amount on the loan taken by the student will be financed by the ministry of human resource development (HRD). Earlier till the students had not completed their studies bank they were not required paying interest on the loan taken from banks.
The scheme will be applicable for students who will take loans from public sector banks for pursuing professional and vocational courses. But, there is confusion whether the scheme will be applicable to all private recognized finance institutions.
However the scheme has been welcomed by students and parents' as they believe this will help in boosting education among the needy students. Bhupendra Shekhawat, spokesperson, Rajasthan University, and a father of 15-year-old daughter said, "This would encourage parents to send their kids for higher studies".
The finance minister has also announced full interest subvention in the loan amount to the students who take admission in institutions approved by banks. According to experts this provision has its limitation, as the premier institutions like IIMs and IITs have been approved by the private sector banks due to their high repayment ability.
According to Industry experts from this scheme thousands of students across the country, will get benefited, especially the poor. According to academicians, this scheme has been launched at the right time as the admission for new session is going on and the premier institutions have raised fees for professional courses.
Kamala Poddar, director, Kamla Poddar Institutes pointed out, "It is a welcome news for the students aspiring to pursue higher studies in professional courses. It would also improve the quality of education being given in professional and vocational institutes."
In this scheme the entire interest amount on the loan taken by the student will be financed by the ministry of human resource development (HRD). Earlier till the students had not completed their studies bank they were not required paying interest on the loan taken from banks.
The scheme will be applicable for students who will take loans from public sector banks for pursuing professional and vocational courses. But, there is confusion whether the scheme will be applicable to all private recognized finance institutions.
However the scheme has been welcomed by students and parents' as they believe this will help in boosting education among the needy students. Bhupendra Shekhawat, spokesperson, Rajasthan University, and a father of 15-year-old daughter said, "This would encourage parents to send their kids for higher studies".
The finance minister has also announced full interest subvention in the loan amount to the students who take admission in institutions approved by banks. According to experts this provision has its limitation, as the premier institutions like IIMs and IITs have been approved by the private sector banks due to their high repayment ability.
According to Industry experts from this scheme thousands of students across the country, will get benefited, especially the poor. According to academicians, this scheme has been launched at the right time as the admission for new session is going on and the premier institutions have raised fees for professional courses.
Kamala Poddar, director, Kamla Poddar Institutes pointed out, "It is a welcome news for the students aspiring to pursue higher studies in professional courses. It would also improve the quality of education being given in professional and vocational institutes."
Thursday, July 2, 2009
PSU banks register 39.51 per cent growth in education loans
In 2008-2009 public sector banks (PSU) banks have registered 39.51 per cent growth in education loans a mark higher than 38.75 per cent recorded in previous financial year. At the end of March the total outstanding education loans of PSU banks amounted to Rs 27,646 crore in 1,603,385 accounts. Maximum distribution of education loan was figured out from State Bank of India, Canara Bank, Indian Bank and Punjab National Bank.
However the UCO bank a Kolkata based bank registered a 45 per cent growth in its education loan amounted at Rs 28,293 in 2008-09, it is the highest growth among all PSU banks. While State Bank of Bikaner and Jaipur witnessed a 53.5 per cent growth in its education loan amount at Rs 286.8 crore in 2008-09 against Rs 186.8 crore a year ago.
Students can take loans up to Rs 1,000,000 for studies in India and Rs 2,000,000 for studies abroad. It is observed there has been increase in education loans due to the introduction of online system for processing loan applications within stipulated time and passing on sanction to the student to approach the concerned branch.
This has been possible as last year the finance ministry had told banks that no educational loan application should be rejected or passed on to another bank/branch on the ground of area of operation, and told them to process the applications as long as it pertains to the same district. Also the banks were instructed not to put any age restriction on applicants of education loan.
In February, the Indian Banks’ Association had instructed banks to give at least 0.5 per cent rebate in interest rates to female students for pursuing higher education.
In the past four years there has been significant growth in educational loans, but are still lacking behind in comparison to other countries. According to figures only three per cent of the enrolled students in India avail education loans as compared to 85 per cent in the UK, 77 per cent in Australia and 50 per cent each in Canada and the US.
However the UCO bank a Kolkata based bank registered a 45 per cent growth in its education loan amounted at Rs 28,293 in 2008-09, it is the highest growth among all PSU banks. While State Bank of Bikaner and Jaipur witnessed a 53.5 per cent growth in its education loan amount at Rs 286.8 crore in 2008-09 against Rs 186.8 crore a year ago.
Students can take loans up to Rs 1,000,000 for studies in India and Rs 2,000,000 for studies abroad. It is observed there has been increase in education loans due to the introduction of online system for processing loan applications within stipulated time and passing on sanction to the student to approach the concerned branch.
This has been possible as last year the finance ministry had told banks that no educational loan application should be rejected or passed on to another bank/branch on the ground of area of operation, and told them to process the applications as long as it pertains to the same district. Also the banks were instructed not to put any age restriction on applicants of education loan.
In February, the Indian Banks’ Association had instructed banks to give at least 0.5 per cent rebate in interest rates to female students for pursuing higher education.
In the past four years there has been significant growth in educational loans, but are still lacking behind in comparison to other countries. According to figures only three per cent of the enrolled students in India avail education loans as compared to 85 per cent in the UK, 77 per cent in Australia and 50 per cent each in Canada and the US.
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