Banks turn cautious as share of education loans in NPAs rises
Banks are cautious and slow in approving such loans due to the high default rate of around 8% in the student loan portfolio. At the end of the June quarter of the current fiscal year, the percentage of non-performing assets (NPA), which includes public sector banks (PSBs), in the education lending category was 7.82 %. Around Rs80,000 crore in outstanding student loan balances as of June 30.
Due to large NPAs, a cautious approach is being taken when issuing education loans at the end of branches, according to a senior official at a public sector bank who spoke to ET.
As a result, the official said, some sincere cases are overlooked and there are delays.
A conference of PSOs was recently convened by the Minister of Finance to assess the education loan portfolio and reduce backlogs. The government has urged banks to inform field formations of the central sector interest subsidy scheme.
In India, PSBs are responsible for disbursing about 90% of all student loans. According to a study published in June 2022, private sector banks and regional rural banks (RRBs) held around 7% and 3% respectively of the total amount of student loans outstanding at the end of March 2020.
According to the RBI Report on Trends and Progress of Banking Sector in India 2020-21, there were Rs 79,056 crore outstanding student loans held by all banks at the end of March 2020 and Rs 78,823 crore crores of rupees at the beginning of March 2021. However, as of March 25, 2022, the total amount of outstanding debts stood at Rs82,723 crore.
Majority of the banks offer students pursuing higher education in India and abroad an education loan scheme which follows the paradigm set by the Association of Indian Banks (IBA).
The majority of these programs have moratorium periods that last for the duration of the course plus six to twelve months, and processing costs for programs with high-value student loans are nil or low.
Based on the reputation of the program/institutions, the interest rates of the different schemes have a mark-up of 2-3% above the marginal cost of funds-based lending rate (MCLR)/external benchmark. The repayment period is between 10 and 15 years.
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