The Hindu Business Line : Negligible defaults make education loans attractive for banks

Going by data compiled by Indian Banks Association, education loans outstanding of public sector banks were Rs 10,004 crore as on March, 31 against Rs 6,713 crore as of March 31, 2005 - a 49 per cent growth.

Mumbai , Sept. 16

Bankers expect demand for education loans to soar by over 25 per cent this fiscal.

The average size of about 70 per cent of the loans were up to Rs 4 lakh without security.

A reason for this sector continuing to be attractive over the last three years is negligible defaults, said bankers. They also see students as potential customers to be tapped for future business. Apart from students rushing overseas, the mushrooming of private colleges has also helped banks in building this portfolio.

SBI tops list

State Bank of India tops the list amongst public sector banks with its outstandings as on March 31, being Rs 2,356 crore. SBI expects a growth of Rs 800 crore in 2006-07. Loan defaults are placed at less than 3 per cent.

"This has been a growing sector and is bound to expand further. The bank is also looking for opportunities to introduce demand-based schemes," said a senior official from State Bank of India.

SBI offers loans upto Rs 4 lakh at 11 per cent with that above Rs 4 lakh costing 12 per cent.

"Study loans in India are seeing a strong growth in the current fiscal. Demand is robust, with private colleges offering courses such as engineering and management," said Mr N Kumaraswamy, GM, UCO Bank. The bank expects a growth of 25 per cent in the education loans segment.

The average loan size of domestic education is Rs 2-3 lakh while that for overseas education is around Rs 7-8 lakhs, said Mr Kumaraswamy.

The total outstandings for UCO Bank is around Rs 185 crore and the NPAs in this segment is about Rs 50 lakhs. Chennai heads the list for this bank with the sanctions put at around Rs 30 crore. "The number of Indian students travelling abroad for higher studies has almost doubled over the last two years. Correspondingly, we have seen a similar trend in the quantum of educational loans," said an official from HSBC.

Banks are also gearing up to offer innovative products. "The bank plans to focus on specific need education loan, where disbursals can be in tranches. An applicant is given loan for each semester, " said Mr V. Vaidyanathan, Country Head-Retail Banking, ICICI Bank said.

Risks

Tracking students after passing out seems to be a major risk, say bankers.

"The scheme is based on the student repaying loans after getting a job. The father is the co-borrower and we would look to him only if the student is unable to pay," said the official from SBI.

"We understand that the Government is also contemplating setting up of a Credit Guarantee Scheme for loans below Rs 4 lakh granted without any security," she said.

The repayment period of study loans ranges from five to ten years after the completion of course.

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