By Debanjoli Nandi
Chennai, February 28: With NPA level mounting up, several banks in Tamil Nadu have raised the interest rate for education loans.
The state which accounted for 45% of all incremental education loans in the last financial year, has drastically curtailed the number of education loans this year. Well, there are a number of reasons cited for such cut-down on the disbursement of education loan.
The Indian Overseas Bank has always been best known for disbursing the maximum number of education loans (to the tune of Rs, 3, 500 crore or above the said-amount), but it has also been trying to be more prudent with loans.
Yogaish C Jain, the general manger and chief finance officer of the Indian Overseas Bank said,” It is basically a clean loan. But the percentage of Non-Performing Assets in education loan is very high. So the cost of fund goes up. Our returns are low. We have an NPA of 831 crores.“
Indian Bank, which has an interest rate of 9.5% for the management quota students, 7.5 % for IBA courses and 11.5% for non-IBA courses , has reported an NPA- level of 17%.
With reference to the interest rate, Shivaprasad, Chief manager, Indian Bank, said “ The interest rate depends on the course, the institution and the category- IBA/ non IBA. Our interest rate is very reasonable. Maybe after SBI, our bank has the largest market share in education loan. But the repayment of education loan is very low. “
But why is the NPA level so high? According to Jain, some private colleges sometimes indirectly remain responsible for such a high level of NPA. “The private colleges have been mushrooming everywhere. They invest a lot of money in the infrastructure, thereby increasing the fees. A lot of students take admission into these colleges. But they do get any employment at the end of the course and ultimately the education loan becomes a burden. All the money goes to these commercial education providers. There is no regulation on the fee structures.”, he said.
However, it will be wrong to say that unemployment of a large number of students from these colleges is the only factor behind the high rates of non-repayment.
Jain observed people educated from premium institutes like IIM and IIT do not always pay back loans. Even a lot of better-off people take loans for their children because no collateral/security is required for any amount between Rs4 and Rs.7.5 lakh.
Legal action can be taken against them but traceability is always an issue. There is no fixed criterion as to where an education loan can be taken from. A student can approach any bank. But taking legal action in India is a long-drawn process, he pointed out blaming the judiciary.
However, Indian Bank generally proceeds against a borrower, if there is any case of default. “We contact the borrower or his/her parents. If we are not able to recover the money, we take legal action. The repayment period is 15 years. During the holiday period, which is 12 months after the course is over, we charge simple interest” said Sivaprasad.
The interest rates for education loan have shot up at some banks in Tamil Nadu due to a large number of willful defaulters and as a result, some meritorious but needy students are suffering.
With reference to the solution to such a huge crisis, Jain suggested the government should formulate a mechanism to ensure all the loans are paid back. It is also the responsibility of the borrower to pay back the loan. According to him, the credit history of an employee should be made known to the employer.
He said,” Education loan is a good facility for the students, especially for the deserving candidates. It is the responsibility of the society to educate its society but at the same time it is also the responsibility of the society to there are repayments. The government should work, the banks should work, the society should work. The society should ensure an individual without any employment is given some vocational training. The government should come up with some schemes under which education loan will be converted to long-term supplementary business loans. A person can be asked to pay back the loan when his/her business is established.”
Government guidelines for education loans have been changing constantly. Though the government is supposed to give 100% interest subsidy, it ends up giving only 10%, Jain revealed.
In this regard, P. Srinivasan, Convenor, Education Loan Task Force also claimed the rules are not implemented. “The interest rate should be low even during the post-moratorium period. I have talked to the government. The finance minister has told me he will arrange a meeting. “
“ Whatever loss is there, adds to the NPA level. Bihar government, Delhi government and central government have come up with some schemes. Our government should also come with a uniform subsidy scheme. Guidelines and systems should be made uniform across banks,” he added.
However, the Indian Overseas Bank , as a socially responsible body, has been raising awareness among the borrowers.
“ We give business loan to people who do not get any employment. We also give them some vocational training. The training session takes place at the regional centres. After training, we caution them against the implications of not paying back loans.”
ELTF’s Srinivasan also thinks the same way. Drawing an example of a brilliant student named Divya,who had paid back the loan in time, he said,” There is a lack of awareness at the banks. Neither the senior executives nor the branch managers know the schemes. The banks do not understand the psychology of the students. Once an awareness is created, the borrowers will become responsible. The government promises to give 100% interest subsidy but gives only 25%. The balance gets added to the student’s loan account. “
Some banks , going against the rules, pressurize the students to pay back loans within three to five years. With reference to the non-adherence to the rules regarding the repayment period , he said ,particularly State Bank of India sells its defaulting education loans to the assets reconstruction companies. The banks have to follow the rules of the Indian Banks Association( as per the IBA scheme, the repayment period lasts for 180 months) They have to be empathetic with the students. RBI’s redressal system is very bad. Banking Ombudsman is the solution. ”
It is presumed that the high-level of non-repayment is the reason why the market share of education loan has gone down drastically. Even the upper limit of education loan for studying abroad is low due to the fear of non-repayment.
“The NPA level stands at 15% in Tamil Nadu. Only 60,000 crore is in education loan and only 25 lakh students are borrowers. At all-India level the market share of education loan was 1.3% three years ago but now it has come down to 0.91%.They say only education loan is creating high level of NPA. The total NPA in the banking industry is officially 4 lakh,” Srinivasan added.
Turning his attention to the future of the country, Srinivasan said,” Education loan is an investment in the future. It can’t be a commercial loan. There is a communication gap between the banks and the students. The banks have to go with the students’ psychology. A sort of hand holding is required. The NPA classification needs to be redefined. If you ( read the bankers) invest in a car, the car will be there for four to five years. But the result of an investment in Divya will be lifelong. She will be an asset to the nation.”
However, for those still struggling for want of funds, lots of scholarship facilites are available on vidyalakshmi.co.in.