Education loan NPAs to stabilise, say bankers

A credit guarantee fund is being set up to offer collateral free loan of Rs 4 lakh

Non-performing assets (NPAs) in the education loan sector are expected to stabilise with a credit guarantee fund being set up to offer collateral free loan of Rs 4 lakh. Even the country's largest lender has only seen a 2.7 per cent growth in its education loan portfolio in September 2015 compared to September 2014.

Expressing concern over rising defaults in education loans, Reserve Bank of India (RBI) governor Raghuram Rajan had said yesterday that they should be devised in a flexible manner, providing options like automatic moratorium if borrowers are 'under a period of unemployment'. Rajan had also raised concerns about rise in bad loans in the education sector at the 6th Delhi Economics Conclave.

State Bank of India's educational loan portfolio was Rs 15,806 crore in September 2015, up from Rs 15,387 crore a year ago. SBI managing director R Sriram said with a credit guarantee fund support in place the credit quality of educational loans is being managed effectively. He said that the NPAs have come down.

Bankers said that partly bad loans have also come down, since they have been treading cautiously on education loan disbursal for the past several few quarters and as a result, growth in education loans has slipped to single digits.

Due to growing non-performing assets (NPAs) in education loans, banks had approached the government for a credit guarantee fund of at least Rs 2,500 crore. Banks also insist on borrowers to take term covers from life insurance companies while taking loans, so that if they meet an untimely death, their family does not have to take the pain of paying the loan.

Credit information company executives are also seeing a drop in number of defaults. A senior executive from a credit information company explained that with the number of loans being given out seeing a drop of atleast 4-5 per cent on an average and the new scheme coming into place, defaults will also come down.

Under the new Credit Guarantee Fund Scheme for Education Loans (CGFSEL), the maximum loan limit under this scheme is Rs 7.5 lakh without any collateral security and third party guarantee. Here, loans up to Rs 4 lakh will be provided in full, while those above Rs 4 lakh, for domestic studies, students will get 95 per cent loan, and for international education, they will get 85 per cent loans.