Since the launch of education loan scheme there has been increase in the number of loan borrowers. The higher education is getting costlier therefore more and more students are taking loan from banks to fund their college fees and other study material instead of reducing their parents’ bank balance.
As per the data available in 2001-02 when the education loan scheme was started banks had disbursed around Rs 700 crore. In the current year, loan of around Rs 6,576 crore was disbursed. By the end of August the total amount of outstanding educational loans stood at Rs 32,017 crore.
Apart from increasing cost of education, the two other factors are responsible for the increase in the demand. One is banks find education loans safe thus more and more banks are offering education loan. The second one is banks are ready to give loan for courses offered by less-known institutes also.
In general the returns of the loan are good and defaults are few and far between. H Rathnakara Hedge, executive director of Oriental Bank of Commerce on behalf of his bank said, “It is a good business for us”. But in general what is true of OBC is true of other banks also.
But four years ago the situation was different, at that time higher education, especially in top professional institutes was still cheap by today’s standards. But with the start up and increase in the number of private institutes, with no exceptions, education is expensive, loans have made easy to get into college as buying a car on EMIs has.
Aggressiveness has made possible for banks to get business. Apart from Hegde of OBC, others too agree with it. Earlier banks used to give loans to only those students who went abroad for higher studies. Late on they started giving loans to students studying in reputed Indian Institutes. Now, students studying in colleges in the B league are also being considered for loan. For instance, Central Bank of India general manager, B N S Ratnakara agreed there is aggression in selling loans to students in low-rung colleges.
IDBI Bank personal banking group head, C S Jain told bank’s education loan portfolio up to 60 per cent has been mainly sanctioned to students studying in institutes other than IITs and IIMs.
The higher the fee structure in a college, the loan demand from banks increases. As IIM education is expensive, thus the loan demand for studies in these institutes has remained high. While at IITs, due to high level of subsidy the demand for loan is quite low.
The Bank of Baroda experience is almost the same. Nandan Srivastava, one of its general managers told the bank has witnessed high demand for loan from non-IIT, non-IIM academies. At the time of sanctioning the loan banks do consider the placement record of an institute, as from this bank judge the repayment ability of the students.
Normally the interest rates charged by the banks differ only marginally. But to the students of premier institutes like the IITs, the IIMs and AIIMS are offered more equal than others. The students of these institutes pay between 0.5 per cent and 1 per cent less than students in not so famous institutes. As these are India’s best institutions, their students get high-paid jobs more easily than others.
Now the awareness for such loans is far greater in as against it was four year ago, this has increased loan demand from students in all kinds of institutes. Even the ratio of loan portfolios in institutes other than the IITs and the IIMs is increasing in most banks, including OBC.
The public sector banks, by assets are owned by the government, so they have to mandatory get into social sector lending first. Moreover education loans, not necessarily by definition in social sector, are a business dominated by these banks.
Banks are not depending on direct lending but also tying up with institutes to increase business. For instance, OBC has tied-up with number of institutes, including IIPM, ICFAI, Amity University, NIIT, Ansal Institute of Technology, to provide funds to the students of these institutes. For this bank has a firm body of clientele guaranteed.
On the other hand institutes are also encouraging multiple banks to work with them. For instance, Amity has also tied-up with Allahabad Bank. The institution’s chancellor Atul Chauhan explained that tie-ups help in faster processing of loans. In his university four out of every 10 students taking admission look for bank funding.
Birla Institute of Management Technology has tie-ups with a trio banks: Canara, UCO and HDFC Bank. According to Rahul Singh, an assistant professor, a quarter of its students have taken loans from banks. Though, such tie-ups do not mean cheaper loans.
However banks consider offering loans to students of reputed institutes safe as in any other. Now the placements are gradually increasing and defaults have been negligible. Also irrespective of institutes, banks are also taking adequate precautions to lower the scope of defaults.
According to IDBI Bank’s Jain when his bank sanction loan, it takes into consideration the future earning potential of a borrower. Banks avoid obliging students of institutes with a troubled placement record.
Central Bank’s Ratnakara also give a word of caution, though, “The real NPA position on education loans is still not clear.” He said till now nothing has come out regarding lending to students of less known colleges will add to the bad assets of banks, however, added, the “preliminary trend does not suggest anything of that sort.”
