Gujarat witness sharp fall in disbursal of education loan

In Gujarat the number of education loan takers has increased in the last financial year (FY), as compared to the previous fiscal. In FY 2009-10, but there has been decline in the education loan disbursement by 42%, in the financial year 2009-10 as compared to the previous year as few students opted for going abroad for studies.

In 2008-09 banks in Gujarat disbursed Rs581.62 crore to students as education loans, in 2009-10, this came down to only Rs332.37 crore, a decline of Rs249.25 crore in absolute terms.

In FY 2009-10, around 12,663 students took education loans from banks while in the previous year the number of such students was 11,296 hence in FY 2009-10, there was a growth of 12% in the number of bank accounts for the same.

According to overseas education consultants and banking experts looking at the figures it is clear that fewer students opted for going abroad for higher education but there has been increase in demand for education loans from students who have joined not-so-big institutes.

P Nandakumaran, chief general manager, State Bank of India (SBI) said, "It seems the demand for education loans is coming more from students joining the not so-premium institutions." He added that, earlier, the students taking admission in premium educational institutions mainly took education loan but now this is not the case.

This financial year the sharp fall in disbursal of education loan has been noticed in SBI’s education loan. In the quarter ending March 2009, SBI had disbursed around Rs305.10 crore to 569 students in the state. While in the March 2010 quarter it came down to just Rs15.32 disbursed to 959 students.

MK Jain, SLBC convener and general manager, Dena Bank pointed out that decline in the amount of disbursal of education loan may be because few students have opted to go abroad for higher studies. Jain said, "The maximum amount given by banks as education loan is Rs20 lakh. The number of students applying for this maximum amount has gone down."

Tanu Seth, office manager, 'Study Overseas', supported Jain's views. She said there has been decline of about 40% in the number of students going abroad for studies. She said the reason for decline may be recession. Seth said, "Only two out of 10 students coming to us are interested in obtaining an education loan, as they usually do not have liquid assets to show as collateral."

NEFC to provide student loans at low interest

The Ministry of Human Resources and Development has written to the heads of the scheduled commercial banks to implement interest subsidy scheme on education loans for poor students pursuing higher studies. Now Kapil Sibal is planning to ask state governments to share with the Centre financial burden of starting a new agency that will offer soft loans to newly upcoming education institutions and students.

But the states are already complaining about the inadequate funds to implement the historic right to education law and have been demanding for additional funds from the Centre therefore this move of human resource development minister can increase their cries of distress.

On the other hand such helplessness will only help the minister in projecting the Centre as the lone fighter for education reforms in the country, a role that forms the part of several Sibal policies.

According to top government sources Sibal will be asking state education ministers to give financial support to the proposed National Education Finance Corporation (NEFC) in a meeting to be held on June 18.

A source said, “It is a win-win situation for the Centre. If states help in funding the NEFC, it reduces our financial bill. If not, it strengthens our position at a time when we face opposition from them on other education reforms.”

However several state governments, including Bengal and Tamil Nadu, have raised apprehension over the powers of the proposed NEFC. Thus, their apprehensions will be discussed by the Central Advisory Board on Education (CABE) — which includes all state education secretaries and the HRD ministry. The meeting will be held on June 19, a day after the NEFC is discussed.

The CABW will also take up discussion on fund-sharing arrangement between the Center and states for the right to education law, the other area of contention.

Earlier, in the Eleventh Five-Year Plan (2007-12) the promised NEFC is seeing along the lines of the National Bank for Agriculture and Rural Development (Nabard), which is providing assistance to self-help groups by offering small loans.

As per the HRD ministry’s draft, the funds to NEFC will be provided through three sources - budgeted funds, a higher education cess already in place but unused, and bonds gift-wrapped in tax concessions. In case states agree to give financial support, the Centre might reduce its budgetary allocation for the NEFC.

The proposed lending agency will be providing student loans at low interest. The arrangement will be implemented parallel to an existing scheme that subsidizes education loans.

The NEFC will also give financial support to the new upcoming government and private higher educational institutions.

According to sources Sibal will put forward his argument that as state government –run institutions will also get benefit from NEFC loans, therefore they should try and give financial support to the proposed agency.

Central Bank of India to provide educational loan to LPU students

The Central Bank of India and Lovely Professional University have signed an MOU under which educational loans will be provided to the aspiring, deserving and brilliant students who cannot afford to pursue higher studies due to financial limitation.

The loan will be disbursed through a single-window clearance facility at nominal and lowest possible interest rates. The girl-students will be provided loan at lower rate of interest in comparison to others. Bank will open a counter in the campus so that students can avail loan easily and for speedy disbursal of loan.

The General Manager of the Central Bank of India, R. Mishra & AGM SC Bhayana was present to sign this MOU. After signing MoU Mishra said, “Education is a fundamental right of each and every denizen of India. However, many of the good students remain devoid of higher studies due to their economic conditions or other types of imposed upon financial constraints. Our bank has taken a great step in this regard by trying to make the loan-procedure very easy. A student will be able to get loan from any of the 3400 branches of our bank through out India.”

On this occasion, the Chancellor of the University Ashok Mittal said: “Such collaboration would result in supporting brilliant students, lacking financial support and opportunity, to complete their studies. It is often seen that in-spite of students’ strong willingness their parents could not let them join the desired program of study due to want of money. This MOU is certainly going to prove as a great boon to all such parents and students as procedure in acquisition of the normal loan to continue a programme have been made very easy. Also, CBoI will open a counter in the campus to facilitate the students in the campus itself for speedy disbursal of education loan. ”

Govt plans to reduce education loans interest rate to 4%

The government is thinking on proposal for providing education loans at interest rates as low as 4%. For this government is working on its refinance scheme and has plans to extend the repayment period for those who want to become doctors, engineers, fashion designers and IT professionals.



To implement this scheme there is a need of setting up of special purpose vehicle to refinance banks for giving education loans below prime lending rates. At present banks charge between 10% and 12% on education loan. The ministry of human resources development (HRD), which has drafted the plan, is also in favor of extending loan repayment periods from 5-7 years to 6-12 years, informed the government officials.



HRD minister Kapil Sibal told ET, “In the next one month, the entire concept will be crystallized.” Mr Sibal stated the ministry has already discussed the proposal with the Planning Commission on Tuesday. “They have appreciated the idea and asked us to submit a formal note,” he said.

Planning Commission official has confirmed this and told ET the panel is working on the proposal for the setting up of up a new National Education Finance Corporation (NEFC) to refinance banks on this count. As per the feedback, the ministry will be preparing a formal note for the approval of the Cabinet.



NEFC will be set up with an initial equity capital of Rs 5,500 crore. The ministry is proposed to provide Rs 3,000 crore to the company every year so that it reaches to Rs 35,500 crore by 2020, the plan panel official said.

The 4% interest rate will be charged from those students whose parents’ income will be less than Rs 4.5 lakh per annum.



While for students whose parents’ income is above this mark take an education loan of less than Rs 12 lakh the interest rate will be 7%. Then for loans above Rs 12 lakh will be charged at 9%, an anonymous official of the plan panel informed. On March 5 Mr Sibal had told the Parliament that his ministry has plans of setting up of NEFC to refinance education loans besides providing funds for educational infrastructure and expansion of educational institutions.


“When... every child has free access to loan why will he need to sell the family silver to enter into an educational institution?” he had said then. In 2009 demand for higher and technical education loan is expected to grow from Rs 7,948 crore to Rs 159,566 crore by 2020, shows an assessment by Educational Consultants India (EdCIL) said, an arm of the HRD ministry offering consultancy services for human resource development.

SBI, UBI launch special education loan scheme for women and IIM

The government is working to provide education to the girl child in view of this it has come up with a model education loan scheme to promote education of the girl child. Last year some of the banks under the guidance of the Indian Banks’ Association (IBA) decided to promote this special scheme.

Working on this plan some of the banks have designed special education loan schemes for women and also for the IIM institutions at lower rates of interest as the risk factor is low and the volume of loan required is large.

Recently two banks Union Bank of India (UBI) and the SBI has launched education loan scheme for IIMs in which women will have to pay 50 basis points less interest rate than their male counterparts.

UBI education loan scheme has been launched exclusively for IIM students under which male students can avail loan at 10.5% interest and female students can avail at 10%.

The total loan amount is Rs 15 lakh and will cover all education expenses, including hostel fees and cost of books.

But for students of ISB Hyderabad, the loan amount will be higher at Rs 20 lakh. The student exchange program will also be covered in this loan and the education loan outstanding amounts to Rs 952 crore.

The education loan portfolio of SBI, the largest lender of the country, is of Rs 8,455 crore, has also introduced education loan program for IIMs. The bank is offering the same 50 basis points lower interest rate for women, similarly to UBI. The bank plans to increase the number of institutions under the SBI scholar loan schemes from 61 to 100 for the next academic year.

A senior SBI official informed, “So far, SBI has extended loans of up to 4.18 lakh students with the average loan size being Rs 3.75 lakh. Our portfolio size has grown by 31 per cent over the past year”. The education loan rate varies between 11 and 12.75 per cent.

Amongst the banks, Bank of India is the major player in education loans with a portfolio size of Rs 1,700 crore. But the bank has not designed any special schemes for IIM or a concessional rate for women students.

Under this concessional scheme if women students repay their loan amount on time, they can avail an interest rate rebate of 1 per cent.

A senior Bank of India official told, “But we do give special loans for out-of-pocket expenses for the IIM students to buy laptops. Our regular education loans extend to the IIMs also.”

PSBs’ showed increase of 15% in education loan portfolios

According to the report submitted by Indian Banks Association to the finance ministry, in the first half of this financial year the state-owned banks education loan has increased by Rs 4,200 crore, an increase of 15%. PSBs opened more than 95,000 accounts during this period.

CGM Personal Banking, SBI, P Nanda Kumaran said, "The loan disbursal during the period June-August is mostly high because all major institutions in India start their semesters during the period. Besides, public sector banks have been offering better terms than private sector banks and that is why the surge."

In this fiscal PSBs had disbursed education loan of around Rs 32,000 crore in which 16,98,601 were benefited. But the government was concerned with the slow approach to education loans and has asked for clarification on it.

Amongst the private sector banks, the three major banks, AXIS, ICICI and HDFC have refused to reveal the details of their education loan portfolio. An ICICI spokesperson pointed out, "We offer education loans but will not be able to share product details."

In public sector banks increase in the education loan portfolio was observed among the smaller banks also such as Corporation Bank, Andhra Bank and Oriental Bank of Commerce.

According to anonymous finance ministry official, the increase portfolio was possible due to concessions given in the previous union budget. In the budget government had announced full interest subsidy for education loans taken by the weaker section. It also provided the income-tax waiver on interest accrued on all loans covering vocational studies as well.

The official informed, "There were other concessions such as low interest rate for girl students which is reflective in the figures."

Even education institutes felt thrust from the concession announced by the government which encouraged banks to give more education loans. "Also, more students are now comfortable with the idea of availing an education loan, which, until a few years ago, was not the case.” For instance, for pursuing higher studies now students prefer to take loan and pay, when they complete their studies or get a job.

Banks doing good business from education loan portfolio

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.”