PSU banks turn cautious on foreign education loans

Indian students going in for higher education or job-specific courses overseas will find it tough to get loans from Indian banks. Most banks are going slow on clearing such loan applications as the employment scenario has turned adverse due to the financial crisis faced by most companies.

Also, repayment capabilities have become a concern with most companies exercising caution on entry-level salaries.

Banks are now insisting on higher interest rates, collaterals and guarantees for job-specific courses like hotel management and pilot training.

Indian Bank Chairman and MD Sundararajan said “it’s going to be tough because of the economic slowdown in developed countries and we cannot remain in a comfort zone. We will keep monitoring the developments”.

Banks, especially state-owned banks, were hyper-active in extending educational loans in the past four years. The annual disbursement of educational loans almost doubled in the four years till March 2008.
 

Education loans disbursed by PSBs
Year	Numberof accounts	Amount Rs crore
2004-05	2,10,617	2,782
2005-06	3,06,557	3,320
2006-07	3,61,21	3 4,148
2007-08	3,36,758	5,635
Source: IBA

According to Indian Bank’s Association data, PSU banks had disbursed loan worth Rs 2,782 crore in 2004-5. That figure rose to Rs 5,635 crore in 2007-08. The total educational loans disbursed till June 2008 by PSU banks were Rs 21,636 crore.

Bank of Baroda sources said admissions for this educational year in countries like the US and the UK have already happened in the August-October period and loan disbursements have been made. In the backdrop of the slowdown, the bank will be careful in taking such decisions in future. The bank has already gone slow in extending loans to courses relating to the aviation sector.

Anathanarayan, chairman of Karnataka Bank, said the bank is maintaining a status-quo on educational loans. “We do not have much exposure in this category. But given the volatility in the financial sector and slowdown, caution is the watchword for us," he said.

Another public sector bank executive, however, said he does not see any slowdown in educational loans. Despite the financial crisis in developed economies, the delinquencies are low.