Education loans: PSBs disbursed less loans in FY23 due to rise in NPAs

Current loan disbursement target set for FY23 for 12 state-run banks 20,450. The target was in the financial year 2020-21 23,640, added daily.

High default of around 8% education loan The portfolio has alerted PSB banks and they go slow on sanctioning such credit. This move may have an impact on private banks which may increase the interest rate.

The non-performing assets (NPAs) in the education loan category, including Public Sector Banks (PSBs), stood at 7.82% at the end of June quarter of the current financial year. were about the outstanding education loan 80,000 crore at the end of June.

The branches end up adopting a cautious approach while sanctioning Education Loans due to the high NPAa bank official told PTI news agency last month.

Also, in September this year, the finance ministry convened a meeting of PSBs to take stock of the education loan portfolio and reduce delays. The ministry asked banks to spread awareness about the Central Sector Interest Subsidy Scheme among field formations.

In India, around 90% of education loans are disbursed by PSBs. As of the end of March 2020, the outstanding to private sector banks and regional rural banks (RRBs) was around 7% and 3% of total education loans, reported PTI news agency.

Banks have been slow in achieving this target and by the end of June 2022, public sector banks were able to deliver 19% of the total target. The record was dismal for small-sized loans ( 7.5 lakh loans) as banks were seeing a large number of defaults in that category.

According to Jyoti Prakash Gadia, Managing Director, Resurgent India, new job creation has not kept pace with the number of graduates turning out from colleges, which has adversely affected the timely repayment of education loans.

As a result, NPAs have gone up and banks are hesitant to lend new education advances, especially 7.50 lakh which is without any collateral and third party guarantee, he said.

Most of the banks offer a scheme for education loan to students pursuing higher studies in India and abroad as per the Indian Banks’ Association (IBA) Model Education Loan Scheme.

Under this model loan scheme, education loan up to No collateral is required to be provided by the borrower for education loan up to Rs.4 lakh 7.5 lakhs can be obtained with collateral in the form of suitable third-party guarantee, while education loans above 7.5 Lakhs Tangible collateral is required. In all the above cases, co-obligation of the parents is necessary.

The second category of education loan is sanctioned to students who get admission in colleges/universities through management quota, provided they fulfill the criteria of minimum marks in the previous examination.

The third category of education loan is for needy students to pursue vocational education courses run by Industrial Training Institutes (ITIs), Polytechnics, training partners affiliated to National Skill Development Corporation (NSDC) / Sector Skill Councils, State Skill Missions / Corporation Includes plans for As per National Skill Qualification Framework (NSQF) and Central or State Board of Education or any other institution recognized by the University leading to Certificate/Diploma/Degree issued by such organization.

The fourth category of the scheme specifically caters to the need of students pursuing courses in premier institutes like IITs/IIMs/NITs/IISc or abroad, demanding higher quantum of loan amount. All education loans up to 10 lakhs (increased 20 lakh (as in September 2020) have been included in the definition of priority sector by the Reserve Bank of India.

PSBs are reporting higher default percentage in the education loan segment. Of Rs 79,900 crore disbursed as education loan IE wrote, 6,246 crores have gone bad till June 2022.

(With PTI inputs)