New Delhi: Indian students are facing trouble getting education loans as banks grapple with a rising burden of non-performing assets (NPA) from the sector. Students and education consultants told ThePrint that banks were either turning away loan aspirants or making them sweat with “arbitrary” demands before granting applications.
Education loans are an important lifeline for students around the world as they allow them to pursue institutes and courses that would have otherwise been beyond their financial wherewithal.
Under government rules, banks are mandated to provide collateral- and margin-free education loans up to Rs 4 lakh to students. Collateral is an asset offered as security, while ‘margin’ is the share of fees a loan doesn’t cover.
This limit increases to Rs 7.5 lakh under the credit guarantee fund for education loan scheme, where the government offers to pay back loans in the event of defaults.
However, these loans seem to have worsened the NPA mess dogging Indian banks.
According to data available with the Indian Banks’ Association, the NPAs of state-run banks with regard to education loans had risen to nearly 9 per cent as of March 2018, from 7.3 per cent as of March 2016 — this means that 7.3 per cent of all education loans given had been qualified as NPAs until March 2016, with the figure rising to 9 per cent over the next two years.
As of March 2016, outstanding education loans for public and private banks stood at Rs 68,200 crore, according to RBI data.
Multiple rejections
Sidhartha Sharma, a journalism graduate, told ThePrint that his loan request for a 10-month course at the Asian College of Journalism (ACJ), Chennai, was turned down by three nationalised banks.
“The banks kept giving me trouble on one pretext or the other,” he said.
“First, they said I would have to give a collateral, which I was ready to do, then they said they give loans for studying in institutes that are either affiliated to the University Grants Commission (UGC) or the All Indian Council for Technical Education (AICTE), and ACJ was affiliated to neither since it’s a journalism college, so they rejected my loan,” he added.
“Some of my other classmates studying in ACJ had, in fact, taken the loan, but I was denied one,” said Sharma, adding that his parents had to ultimately fund his course at ACJ, where tuition fees ranges from Rs 4.25 lakh to Rs 7.08 lakh.
Santosh Tiwari, a Delhi-based education consultant, said affiliation was a major factor in loan denial, but also cited the role of CIBIL score, which depicts an individual’s “credit payment history across loan types and credit institutions over a period of time” and is used by financial agencies to judge an applicant’s ability to pay back debt.
“Sometimes, the parent or guardian, whoever is initiating the loan, does not have a CIBIL history and that creates a problem, because the student would not have a CIBIL score anyway,” Tiwari added.
“Another problem is when a student is applying to a college that is either not recognised by a body like the UGC or AICTE, or is less known… In such cases, proving to the bank that the student would be able to get a job and repay the loan becomes difficult,” he said.
The road gets only tougher for students planning to study abroad, because the amount involved is higher and there is a chance the institute may be a con operation, Tiwari pointed out.
Also read: Indian nurses are not paying back their education loans
On the decline
Milind Geete, a student who applied for an education loan to pursue a Master’s in Business Administration two years ago, said he faced problems in securing the money because his parents did not have a CIBIL history.
“I had applied… to two public sector banks and both rejected my loan application because my parents did not have a CIBIL history as they had never taken any kind of loans in the past,” he told ThePrint.
“I had to then approach a private bank, which gave me the loan, but on a higher rate of interest,” he said.
Sandeep Bajpai, a student who has been struggling with public banks for an education loan to pursue engineering, said he was planning to approach “higher authorities to see if something can happen”.
“I lost my father last year and my mother is not a working professional, that is why banks are giving me trouble,” he said.
The education loans portfolio has contracted over the last two years in India, data with the Reserve Bank of India (RBI) shows. From Rs 69,700 crore in March 2018, it was down 2.5 per cent to Rs 68,000 crore in March 2019. It stood at Rs 70,100 crore in March 2017.
The decline in growth is despite the fact that the majority of these loans can be classified as priority-sector lending, which can help banks meet the regulatory dispensation.
Y.P. Issar, a retired general manager with Punjab National Bank, explained that there were many reasons for the reluctance of banks.
“The past experience of banks with regard to education loans has not been good and one can see this in the rising NPAs in these loans,” he said.
“Naturally, as NPAs have risen, banks have withdrawn from the space as there is no government mechanism to help banks in the recovery of such loans. They may make other loan availing conditions onerous to deny a loan,” he added.
“Another reason is that the employment scenario is deteriorating and not getting a job when you have a loan to repay is not a viable option,” Issar said.
ThePrint had reported in January that nursing students accounted for the biggest chunk of NPAs vis-a-vis student loans — with 21 per cent of loans taken by nursing students qualified as NPAs as of March 2018.
This was followed by the engineering stream (9.76 per cent), medical (6.06 per cent) and MBA (5.59 per cent).
Education loans have also become an election issue, with the Congress promising that the party would waive all outstanding interest on education loans up to 31 March 2019 if voted to office.
Also read: Modi govt’s MUDRA is feeding dreams of your local beautician, grocer… and bad loans
NPA is an issue
NPA is shooting up every year as majority remains jobless
It is all linked to productivity, employment rate… If there are jobs in market automatically there is a chance for repayment of loans. Any growth in economy is short lived if it fails to generate employment… it is just a bubble. In the era of globalisation increased trade deficit and productivity translate to low employment generation as simply injection of Govt jobs doesn’t solve the crisis. It is a simple economy of equilibrium. Government injected jobs will have no effect on job creation and next comes is internal economy which is basically trade and production with inter state competition. Internal economy growth can provide more jobs state specific or region specific with respect to productivity…. in a nutshell Jobs created in one region or state is Job lost in another region. Long lasting and sustainable job creation can come from global economy how much of the percentage of production reached global market, how much of the countries human resources capital value exported outside… Look at China their good employment rate and vibrant industry is standing on foreign trade…. They made their human capital to reap rich benefits inspite of being burdened by over population.