Indian banks are grappled with trouble. The rise in Non- Performing Assets (NPAs) or bad loans is adding to woes of several banks, mainly the public sector ones. This in turn has also taken a toll on the Capital Adequacy Ratio (CAR) which dwindled in the last 5 years. Moreover, with a high interest rate scenario healthy credit growth has become hard to come. Also, frauds that have recently come to light are blemishing the face of Indian banking system which is otherwise known for its tight regulatory controls. Such episodes are making deposit holders worry, who until now trusted banks with their hard earned money.

Besides, now it appears that the youth who look for funds from banks to pursue higher education will be affected as banks grapple with such problem.

The former Finance Minister, Mr. P. Chidambaram had earlier said that, "bank loan is a right of every student". However, being worried about growing NPAs in the education loan segment, banks have been reluctant to offer education loans of late. Between March 2014 and July 2014, the growth in the disbursal of education loans was merely 1.9%. Overall, from July 2013 to July 2014, education loans have grown at a single digit rate of 8%.

You see, as you may know cost of education is on rise and thus when it comes to pursuing higher education, sometimes funding through 'own funds' gets difficult and thus many depend on 'borrowed funds' from banks to fulfil their ambitions. You see, this is an important phase and today being well-qualified is imperative.

What banks have to say?

Under education loan scheme, Indian students can borrow upto Rs 10 lakh for the domestic education and Rs 20 lakh for overseas education programmes. In addition to the tenure of the course, students are given a year's time before the repayment of the loan begins. The repayment tenure is spread over about 5-7 years.

Banks are now approaching the Government for the credit guarantee of at least Rs 2,500 crore. Banks have been instructed to issue loans upto Rs 4 lakh without demanding collateral. And some bankers are of the view that this clause may worsen the situation of NPAs.

What loan seekers are doing?

The needy are opting for options such as Loan against Property (LAP). Banks usually charge about 14%-16% interest rate for offering LAP loans. In some cases this may turn out be a cheaper option where rate of education loan is high. Thus students are also approaching Non-Banking Financial Companies (NBFCs) for loans that are pushing this product aggressively.

PersonalFN is of the view that, sudden drop in the disbursal of education loans is unfortunate. Although it is true that, Indian banks are facing troubles in recovering loans across segments, weightage of education loans in total loans turning bad may not be as high as one may think. On the contrary, it has been observed that, large corporate accounts are turning sour for banks. This suggests that, there is lapse in the credit assessment process of the bank. Financial Services Secretory, GS Sandhu, opined that, struggling Public Sector Banks (PSBs) should cut their exposure to corporate lending and should focus more on the retail segment.

PersonalFN is of the view that, well deserving students shouldn't be denied loans. Banks have to recognise that the future of India lies in the hands of youth, who need to be well qualified. Nonetheless, PersonalFN is of the view that banks should follow a strong risk management processes to ensure that they are not exposed to risk of bad loans. Opting for LAP is an extreme option and may be used only if all other ways of securing loans meet a dead end. To avoid being in such traumatic situations, PersonalFN believes, one should make a list of financial goals which may include educating one's children. If you start investing early for the higher education of your children, your child may never have to rely on education loans.

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tauruskvs@gmail.com Aug 22, 2015 Banks are not realising that this segment is a very good one provided they keep tabs on the students. Many of the students going abroad have infact paid of the loans within two to three years i.e. well before the scheduled repayment period. Moreover with the rupee continuously depreciating, it is somewhat easier for the students who find employment, after their studies, to foreclose their loans and gain in the process. The other aspect is that the upper limit of the loan is Rs.20 lakhs which was fixed some years ago probably when the rupee was about Rs.40-45/- to a dollar. Today with the increase in fees and the depreciating rupee, it is hightime that the Government /RBI raised this upper limit to atleast Rs.35 lakhs.

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