Rajan frowns on 'subsidising' foreign education loans

Calls for a rethink on why some sectors should get more easy credit than others

Calling for a re-think on easy credit, RBI Governor Raghuram Rajan has said banks are actually subsidising student education loans for overseas studies under the priority sector lending (PSL) segment.

"We actually subsidise, in the priority sector, student loans to study abroad. Are students studying abroad the most needy in the country or is it the most important?" Rajan said in an address to bankers at an industry summit here last week.

"This is something people have got used to. I am not saying it is bad, but it is something you should ask questions about. We have to keep asking ourselves, why should some sectors get more easy credit than others," he said.

Under priority sector lending norms, banks are mandated to lend up to 40% of their overall credit to marginalised sectors like agriculture, housing, small businesses and education.

Banks lend to such identified sectors as per their base rates and the shortfalls of the targets have to go to the low-yielding Rural Infrastructure Development Fund (RIDF).

Most banks, especially in the private sector and overseas banks generally fail to meet these targets. Even some state-run banks fail to meet this target due to lower number of branches.

Under the present norm, a loan of under Rs 20 lakh taken by an individual for studying abroad qualifies as priority sector lending.

As on September 15, the outstanding education credit, including for loans to study within the country and abroad, stood at Rs 579.02 billion, according to RBI data.