Banks reluctant to pay out student loans despite drop in defaults – The New Indian Express

Express Message Service

KOCHI: Banks in Kerala appear to be shying away from education loans – a major source of funding for low-income students to pursue higher studies in India and abroad – despite a decline in defaults on repayments.

According to the latest statistics, the total number of students availing education loans decreased by 24,257 in the quarter ended September 30, 2021, from 3,32,645 to 3,08,388 in the quarter ended June 30, 2021. This is a decrease of 7 .29% qoq. Compared to the September 2020 period, the drop is even greater at 56,404 or 15% from 3,64,797.

Interestingly, the total outstanding education loans have shown a marginal increase of 4.28% to Rs 11,158 crore in September 2021 compared to Rs 10,700 crore in June 2021. “We are reluctant to sanction loans below Rs 4 lakh per student,” said KS Krishna, national joint Secretary of the All India Bank Employees Federation (AIBEF).

Education loans up to Rs 4 lakh require no collateral or margin, while loans above this limit require the borrower to post collateral, allowing banks to lend larger amounts conveniently. However, compared to the same period last year, the total outstanding education loans in Kerala decreased by Rs. 378 crore (3%) from Rs. 49.48%) is awarded on loans of about Rs 7.5 lakh per student and Rs 1,695.74 crore for loans of Rs 4-7.5 lakh. Simply put, nearly 65% ​​of student loans are sanctioned for those willing to post a security.

Under the Education Loan Scheme, banks can lend up to Rs 7.5 lakh for study in India and up to Rs 15 lakh for study abroad. “So in this scenario, the social purpose of helping the students who are struggling to fund their college expenses is missing,” Krishna said. NPAs in the student loan segment decreased from 10.32% in the June quarter of 2021 to 9.17% in the September quarter of 2021. In absolute terms, the NPA fell to Rs.1,023 crore from Rs.1,104 crore, down from Rs.81 crore on a quarterly basis.

T. Narendran, President of the Bank Employees Federation of India (BEFI), Kerala, said that the repayment of the education loans does not start until six months after the course is completed or when the student gets a job, whichever comes first, depending on the interest rate is calculated from the date of loan approval. “So this is like a ticking time bomb for students,” he said.

For loans under Rs 4 lakh the interest rate should not exceed the Prime Rate (PLR) and for over Rs 4 lakh the interest rate should not exceed PLR plus 1%. “In reality this is much higher as interest rates are calculated from the date of the loan sanction. Additionally, if the student gets a job, he/she may have missed a rate or two, affecting their credit score, which in turn affects the student’s career prospects,” Narendran said.