This will work as surety for repayments, according to Finance Ministry
Thinking of applying for an education loan? The process will be easier if you get a seat in a college with a good placement record.
The Finance Ministry has told public sector banks that placement records of institutions should be a criteria for granting education loans, for it will work as a surety for loan repayments – as such students are more likely to get jobs. The Ministry has also asked banks to ensure equal regional spread in terms of approving educational loans.
In an interview to BusinessLine, Financial Services Secretary Hasmukh Adhia said bad debts (Non-Performing Assets or NPAs in banking parlance) in education loans have gone up. One reason is the issue of employability after completion of the course. Banking sources said that against the overall NPA of 5.5-5.6 (as a percentage of total advances), bad debts in education loans have gone up to 8-8.5 per cent.
“There is a severe regional disparity in the approval of the loans. More than 50 per cent of the loans approved are in the South, while the rest gets only 15 per cent or 12 per cent each… and most of them have been given to self-financed institutions. Some of them were not of good quality. And so employability was in question,” Adhia said. He also said that the Indian Banks’ Association (IBA) has shortlisted 1,100 Grade ‘A’ institutions and universities and students entering these will get loans easily as they are more likely to land jobs.
Disbursement target
“We have told banks to target a 20 per cent increase in loan disbursements every year, and 15 per cent in the number of accounts,” he said. One can avail education loan up to ₹10 lakh (could be higher for studying in IIMs, ISB, etc) for studying in the country and up to ₹20 lakh for studies abroad. There is no collateral requirement for loan up to ₹7.5 lakh, but parents need to be joint borrowers. There will also be a requirement for third-party guarantee for loans between ₹4 lakh and ₹7.5 lakh.