Government to banks: complaints, grant more student loans
WITH PUBLIC SECTOR BANK (PSB) hesitant to disburse low value education loans claiming defaults, the government has asked them to increase disbursements, citing several complaints received from various quarters about the delay in sanctioning and refusal for “weak reasons”, The Indian Express has learned.
An official source said the matter was discussed at a meeting last week held by the Department of Financial Services (DFS) and involving representatives from the 12 PSBs. The banks were told that the department had received numerous complaints from various quarters, including the highest levels of government. “They were asking to increase the disbursement of loans for education,” the source said.
Banks ordered to disburse student loans within stipulated 15-30 days, not to refuse loans on ‘weak grounds’, such as co-borrower’s CIBIL score and course ineligibility , and not to ask for collateral for these loans up to Rs 7.5 lakh.
Banks have also been asked to guide student loan seekers on the Central Sector Interest Subsidy Scheme for students whose annual family income does not exceed Rs 4.5 lakh.
The Union Finance Ministry and Department of Financial Services did not respond to Indian Express emails seeking comment.
Banks say the latest surge will put pressure on their balance sheets (see chart) as non-performing assets (NPAs) in education loans rise due to defaults on small loans (up to Rs 7, 5 lakh).
“Defaults are increasing in these smaller loans because these freshmen are not able to find jobs as easily as before and therefore the banks have introduced these rules to secure certain guarantees in default,” said one banker, who was unwilling. be identified.
According to data updated through June 30, 2022, approximately 8% of education loans disbursed by PSBs have turned into NPAs. Of the Rs 79,900 crore of education loans disbursed, about Rs 6,246 crore went bad.
By contrast, gross NPAs in the banking sector fell below 6% in March 2022 – the lowest since 2016 – even as net NPAs fell to 1.7% over the same period, Mr Rajeshwar Rao , Deputy Governor of the Reserve Bank of India, had said in July.
Among PSBs, Indian Bank leads the NPA rankings with over 29% of their education loans going bad, followed by UCO Bank with over 18%.
Of the 12 banks, six of them have high double-digit defaults. Notably, State Bank of India and Canara Bank, which handle about half of PSB’s total education loan portfolio, have lower NPAs of 2.23 and 3.88 percent, respectively.
“It’s alarming that 8% of total education loans have gone bad, and that’s concerning,” said one of the bankers.
The government aims for PSBs to provide over Rs 20,000 crore in education loans for the current financial year, with banks expected to reach 19% of the target by the end of the first quarter. About 90% of education loans in India are disbursed by PSOs.
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Despite the impact of the pandemic on physical courses, the demand for student loans has remained high during the Covid period.
Data from CRIF High Mark, an RBI approved credit bureau, showed the bulk of disbursements occurred during the pandemic period with more than 3 lakh new borrowers taking up student loans between March and October 2020. There was also a disbursement of Rs 11,000 crore loans by education enterprises till the end of September, according to data released by the bureau in March 2022.