Chidambaram to hold first performance review today

The Finance Minister P Chidambaram is scheduled to discuss expansion of education loans with banks chiefs on Saturday. This will be one of the key points on the agenda apart from Non-performing Assets (NPA) in the banking sector.

This is the first such performance review meeting after Chidambaram returned to the Finance Ministry. According to the agenda note circulated for the meeting, four issues related to education loans are to be considered. These are expansion, ensuring time-bound disposal of applications, education loans for meritorious students admitted under management quota, and loans for professional diploma courses.

At end-March, public sector banks had over 24 lakh education loan accounts, with outstandings of nearly Rs 49,000 crore. The banking system is working on two imperatives with regard to education loans. First is a credit guarantee fund (as announced in this year budget) and creation of a framework for rating of institutions/courses and students.

Considering the need for extending credit for vocational courses and to skill up graduation, a “Model Loan Scheme for Vocational Education and Training” has also been formulated and circulated by banking body Indian Banks Association (IBA).

This scheme proposes bank finance for students who secure admission into a Government-recognised, employment-oriented vocational training course. Loan amount will be Rs 20,000 for courses with duration up to three months and Rs 1.50 lakh for courses of more than 1 year. The repayment period will range from 2 years to 7 years.

Non-performing assets

The meeting will discuss increase in NPA in more detail. There has been an alarming increase in gross as well as net NPA at the end of first three months (April-June, 2012).

According to a senior Finance Ministry official, as informed by RBI, at system level, new accretion to NPAs has been much more than the reduction in existing NPAs. This is due to lower level of upgradation and recoveries. Also, despite write offs, gross NPAs have continued to rise significantly.

(This article was published on August 17, 2012)
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