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A Budget announcement made two years ago on setting up a Credit Guarantee Fund for education loans is yet to become operational, despite getting Cabinet approval last November for ,500-crore fund.
The Finance Ministry recently admitted in the Lok Sabha that the scheme is yet to start. The fund was proposed by the then Finance Minister (now President) Pranab Mukherjee in his 2012-13 Budget. He had said: “To ensure better flow of credit to deserving students, I propose to set up a Credit Guarantee Fund for this purpose.”
Non-starter Almost a year and a half later, the Cabinet approved the proposal with the Human Resource Development Ministry as settler. The Finance Ministry, however, has not offered a reason for the delay in kick-starting the scheme. The scheme was introduced at a time when bad loans or non-performing assets (NPAs) in the education category were high. One reason for the low interest in starting the scheme could be because education loans are part of retail loans and NPAs for retail loans are now declining. The fund proposes to reimburse up to 75 per cent in case of loan default. It will cover loans up to ₹4 lakh (without any collateral security or third party guarantee) and loans between ₹4-7.5 lakh (without any collateral security). The amount ceiling can be revised by the management committee.
The fund will guarantee loans where the interest rate is more than 2 per cent over the base rate. The one-time processing fee is 9.25 per cent of the loan amount, while the guarantee fee is 1 per cent of the outstanding amount.
The management committee for the fund is to be headed by a senior official of the HRD Ministry with members from the Finance Ministry and banks, and also sectoral experts.
Relief To check NPAs in the education loan category, the UPA Government had, earlier this year, announced a moratorium period for all education loans taken up to March 31, 2009, and outstanding on December 31, 2013.
The Government said it would take over liability for outstanding interest as on December 31, 2013 but the borrower would have to pay interest for the period after January 1, 2014. Nearly nine lakh student borrowers would benefit to the tune of roughly ₹2,600 crore.
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