Reserve Bank cold to banks' plea on study loan recast

No special treatment, says RBI; payment period may be lengthened.

Ballooning bad assets from education loans are forcing banks to restructure these loans. And, they want the Reserve Bank of India (RBI) to allow them to classify the restructured loan as a standard asset and not a non-performing one (NPA). The proposal, however, has not found favour with RBI.

Any restructured loan has to be reckoned non-performing, according to the RBI rule. In 2008-09, during the global financial crisis, RBI allowed banks a one-time dispensation in which restructured loans could be considered standard assets. The move was aimed at providing support to genuine borrowers facing a cash flow problem because of the global downturn.

Given the unsecured nature of most study loans, RBI is not comfortable with the idea of a special dispensation here, bankers said.

According to estimates from bankers to the Union finance ministry, NPAs had risen above two per cent of the educational loan portfolio, which is about Rs 40,000 crore, as on March 31. Banks fear this would rise. These loans were an insignificant figure before 2004-05, when a set of more liberal rules gave these a boost.

In the educational loan scheme, it is possible to borrow up to Rs 10 lakh for domestic education and Rs 20 lakh for studying in foreign colleges. Borrowers need not pay during the tenure of the course plus a year after. The repayment period is five to seven years.

In addition, for loans up to Rs 4 lakh, banks cannot ask for any collateral. This particular clause is thought by bankers to have made loans more prone to turn sour.
 

EDUCATION LOAN
As on  31-Mar	Number of  accounts	Amount  outstanding (Rs  cr)	Y-o-Y growth (%)
			No.of accounts	Amount
2005	468,207	6,713	46.62	47.54
2006	679,945	10,012	45.22	49.14
2007	944,397	14,283	38.89	42.65
2008	1,246,870	19,817	32.03	38.75
2009	1,603,385	27,646	28.59	39.51
2010	1,851,106	34,192	15.45	23.68
Source: IBA

Banks may extend the repayment period. “If a candidate takes a Rs 5 lakh loan, for example, it may not be possible to repay in five years. Hence, there is a thinking to increase the repayment tenure,” said a bank official with a public sector bank. The repayment period may get extended to 10-15 years, as compared to five to seven years now.

In the segment, State Bank of India (SBI) is the largest, with around 25 per cent of the study loan market. It had Rs 8,900 crore of such loans on March 31, growth of 35 per cent over the previous year.

Banks had earlier requested the government to create a credit guarantee fund for educational loans, on the lines of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), jointly set up by the government and Small Industries Development Bank of India (Sidbi). CGTMSE, in which 80 per cent was contributed by the government and the rest by Sidbi, provides credit guarantees to banks and other financial institutions for facilitating collateral-free lending to medium and small enterprises.