Central bank's position paper on student loans

The Reserve Bank of India (RBI) is to issue a position paper on educational loans. The effort would be to push the education loan schemes in various banks, on the basis of the complaints the central bank had got from various stakeholders, said RBI Governor D Subbarao. The decision was taken in its central board meeting here, based on complaints that some banks were reluctant to do much on education loans, putting up various conditions for issuing these.

“This is a problem everywhere in the country. There are two types of problems. One is that students are not getting loans and the other is that they’re getting these but get away without repaying, which leads banks to ask for collateral,” he said.

The board discussed what to do on both fronts. Based on the position paper, RBI would do a study in selected states and take action based on the outcome, said Subbarao.

Banks have so far disbursed around Rs 50,000 crore to around 2-2.5 million students, according to RBI officials. However, there are reports that quite a few do not repay and this has created a situation where banks start asking for higher collateral, an issue the chief minister of this Union Territory, N Rangasamy, also raised in his meeting with Subbarao.

Last evening, in a meeting organised at the Jawaharlal Institute of Postgraduate Medical Education & Research with students from various parts of the country, Subbarao said the central government was working on a guarantee scheme for education loans up to Rs 7 lakh. Normally, loans up to Rs 4 lakh have to be disbursed without a guarantee, under the education loan category, “but I know banks are asking for guarantee,” he said.

Under the new scheme being worked on, there would be no need for a third-party guarantee or collateral security for a loan up to Rs 7 lakh and the guarantee would be given by the government, he added.