Education loan disbursal target for public-sector banks during the current financial year has been set at about 13.5 per cent lower than total disbursal by all scheduled commercial banks in the FY22. This is despite the fact that the government is concerned over slow disbursal of education loan by public-sector banks (PSBs).
Data shows the country’s financial system disbursed education loans amounting to Rs 23,640 crore during 2021-22 while the target set for the country’s 12 PSBs for the current year is a lower Rs 20,450 crore. PSBs, however, cumulatively account for around 90 per cent of education loans disbursed by banks in the country.
Banks have been slow in achieving this target, and till the end of June 2022, public-sector banks were able to disburse 19 per cent of the total target. The record was dismal for smaller-sized loans (up to Rs 7.5 lakh loans), since banks were seeing high number of defaults in that category.
The Department of Financial Services had called a meeting of these banks in August asking them to expedite loan disbursal citing a large number of complaints received from various quarters, including the Prime Minister’s Office and VIPs, on delay in sanction and denial on flimsy grounds. Private sector banks and regional rural banks accounted for around 7 per cent and 3 per cent of total education loan outstanding, respectively, as at end- March 2020, a paper published in June 2022 said.
“Banks are wary of small ticket-size loans since there has been a large number of defaults in that segment. Defaults in bigger educational loans have not been so high,” said a banker aware of these discussions. Emails and messages sent to the Finance Ministry and Vivek Joshi, Secretary, Department of Financial Services did not elicit any response till print time. Education loans of up to Rs 4 lakh do not require any collateral to be provided by the borrower. Loans up to Rs 7.5 lakh can be obtained with collateral in the form of suitable third-party guarantee, while education loans above Rs 7.5 lakh require tangible collateral. In all the above cases, co-obligation of parents is necessary.
Industry watchers, however, say that they expect banks to lend more than the target.
“Like other sectors, the education sector has also seen an uptick in demand in terms of a larger number of students going abroad for studies and classes moving away from virtual mode. Hence, I see banks disbursing more education loans this year over last year. Banks, however, would be a little cautious in lending smaller ticket size loans since defaults are higher in that segment,” said Prakash Agarwal – director & head Financial Institutions – India Ratings & Research.
While loans up to Rs 7.5 lakh are insured, rising defaults do bother these banks. The government is also discussing a proposal to increase the insurance limit for education loans to up to Rs 10 lakh and are in discussions with the Ministry of Education. PSBs are reporting a higher default percentage in the education loans segment and according to data updated till June 30, 2022, about 8 per cent of education loans disbursed by PSBs have turned into NPAs. Of the Rs 79,900 crore in education loans disbursed, about Rs 6,246 crore have turned bad.
In contrast, gross (NPAs of the banking sector dropped below 6 per cent as of March 2022 — the lowest since 2016 — and net NPAs fell to 1.7 per cent during the same period, M Rajeshwar Rao, deputy governor of the Reserve Bank of India was quoted as saying in July.