Education loan: PSBs disburse lesser loan in FY23 due to rise in NPAs

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India’s Public Sector Banks (PSBs) have reduced their education loan disbursement targets in the current financial year due to rising defaults. According to a report by Indian Express, the education loan disbursement target for PSBs has been set at around 13.5% lower than the total disbursements by banks in the previous financial year.

Current disbursement targets for FY23 have been set for 12 state-run banks 20,450. The target was in FY 2020-21 23,640, added daily.

High defaults of around 8% in the education loan portfolio of PSBs have made banks wary and have gone slow in sanctioning such credit. This move may impact private banks which may raise interest rates

Non-performing assets (NPAs) in the education loan segment, including public sector banks (PSBs), stood at 7.82% at the end of the June quarter of the current financial year. It was about outstanding education loans 80,000 crore at the end of June.

A caution is exercised at the branch end while sanctioning education loans due to high NPAs, a bank official told news agency PTI last month.

Also, in September this year, the Finance Ministry convened a meeting of PSBs to take stock of the education loan portfolio and reduce delays. The Ministry has urged banks to spread awareness about the Central Sector Interest Subsidy Scheme within the sector.

In India, about 90% of education loans are disbursed by PSBs. As of the end of March 2020, private sector banks and regional rural banks (RRBs) accounted for about 7% and 3% of the total education loan outstanding, according to a PTI news agency report.

Banks were slow to meet this target and by the end of June 2022, public-sector banks were able to disburse 19% of the total target. The record is for small scale loans (up to 7.5 lakh loans) as banks were seeing high number of defaulters in that category.

According to Jyoti Prakash Gadia, managing director of Resurgent India, new job creation has not kept pace with the number of college graduates, which has adversely affected the timely repayment of education loans.

As a result, NPAs have increased and banks are hesitating to lend new educational advances, especially. 7.50 lakh which is without any collateral and third party guarantee, he said.

Most banks offer a scheme for education loans as per the Indian Banks Association (IBA) Model Education Loan Scheme for those pursuing higher education in India and abroad.

According to this model loan scheme, up to education loans 4 lakh No collateral is required to be provided by the borrower, up to education loan 7.5 lakh can be obtained with collateral in the form of a suitable third party guarantee, while above education loan 7.5 lakhs requires physical security. In all the above cases, co-responsibility of parents is required.

Class II education loans are sanctioned to students who get admission in colleges/universities through management quota, provided they fulfill the minimum marks criteria in the previous examination.

Category III education loans include schemes for needy students to pursue vocational education courses run by training partners affiliated to Industrial Training Institutes (ITIs), Polytechnics, National Skill Development Corporation (NSDC)/Sector Skill Councils, State Skill Missions/Corporations. A Certificate/Diploma/Degree issued by such body as per National Skill Qualification Framework (NSQF) and any other institution recognized by Central or State Board of Education or University.

The fourth category of the scheme specifically caters to the needs of students studying in IITs/IIMs/NITs/IISc or courses abroad, where higher amount of loan amount is demanded. All education loans up to 10 lakhs (increased to 20 lakh September 2020) has been included in the definition of priority sector by the Reserve Bank of India.

PSBs are reporting high default percentage in education loan segment. of About Tk 79,900 crore education loans have been disbursed 6,246 crore has worsened by June 2022, IE wrote.

(with PTI input)

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