Students may soon find it easier to get education loans with the Finance Ministry reviewing the problem areas in public sector banks, indicating that it may consider reworking its strategy.
The matter came up during a meeting chaired by Finance Minister Arun Jaitley to review the performance of public sector banks on November 20. In a presentation, the Financial Services Department listed five issues. The first was the ‘attitude of bank officials towards students was not positive.’ The second related to ‘insistence on place of domicile’ and the third was ‘collaterals even for loans below ₹4 lakh.’ Two other issues were related to subsidy.
CollateralThe Model Education Loan Scheme for pursuing higher education in India and abroad, as prepared by the Indian Banks Association, clearly states that for a loan up to ₹4 lakh, there will be no requirement of collateral, though parents will be joint borrowers.
Banks have been given discretionary power to waive the requirement of collateral for loan between ₹4 lakh and ₹7.50 lakh.
However, there have been complaints from students, especially those wanting a loan of up to ₹4 lakh, that banks demand collateral.
The problems of banks are understandable as bad debts (known non-performing assets or NPAs) in education loans are as high as 9 per cent.
In the meeting, banks officials insisted that guidelines on loans up to ₹4 lakh are followed, that is no demand for security is made. However, the scheme clearly mentions that it provides broad guidelines to banks for operationalising the educational loan scheme and the implementing bank will have the discretion to make changes as deemed fit.
Banks ask students to approach a branch near his or her residence, even if a student is pursuing a course in another city. This is despite the scheme clearly stating that students may submit loan applications either at bank branches near their parents’ residence or the educational institution. However, once the loan is sanctioned, the cases can be transferred to the bank branch near the institution for follow-up. The KYC (know your client) compliance for the purpose has to be done by the branch nearest to the parent’s residence.
SubsidyIt was also highlighted at the meeting that after release of subsidy for the first year, there is delay in subsequent releases. At the same time, newly recruited officers are not familiar with all the provisions of Central scheme for interest subsidy. A scheme of the Human Resources Ministry prescribes 100 per cent interest subsidy for students whose parental income is up to ₹4.5 lakh.
This subsidy is available for loans disbursed on or after April 1, 2009. Students who had loan sanctioned prior to that date would also be eligible for interest subsidy on fresh disbursements made by banks on or after 1st April, 2009. The subsidy would be paid on interest charged during the study period as well as subsequent moratorium period before commencement of repayment.