Money & Banking

Education loans at 3-year low

G Naga Sridhar Hyderabad | Updated on December 13, 2019

Banks turn wary of lending as bad loans surge

Disbursal of education loans has declined steeply.

The total portfolio under ‘priority sector education loans’ showed the highest ever decline as on November 2019 compared to the same period last year, according to data available with the Reserve Bank of India.

The 5.6 per cent decline makes it the steepest fall in the last three years. In fact, there has been no growth in this portfolio after 2016.

The year-on-year dip in education loans was 4.7 per cent in 2018 compared to 2017. The disbursals in 2017 dipped 3.3 per cent compared to 2016. In 2016, however, they rose 2.4 per cent compared to the previous year.

Rising stress

“The stress in education loans has been rising steadily since 2017 leading to slow down in disbursals at almost all banks. The situation is more alarming now,’’ said an official of a major public sector bank.

In two years, the RBI intervened to boost study loan disbursals by rescheduling their payment period, saying that unemployment of the borrower will not be treated as restructured accounts for computing NPAs.

However, this did not lead to any improvement as bad loans continued to haunt banks. In the last three years from 2016-17 to 2018-19, the amount outstanding under the education loan portfolio rose from ₹67,685.59 crore to ₹75,450.68 crore (as on September 2019).

Bankers say that apart from fewer job opportunities, the dip in entry-level salaries in many sectors has been a factor for the increasing stress.

Those who availed themselves of loans five to eight years ago had better expectations on entry-level salaries.

“But in the last three years some students who secured jobs after completing their education are joining at an entry-level salary of ₹15,000 to ₹20,000 mainly in the IT and ITeS sector, making it difficult to service EMIs,’’ said a senior official of Andhra Bank.

In some rural areas, especially in the North, there were also expectations of loan waivers in view of the general elections held early this year.

Finance Minister Nirmala Sitharaman on Monday said in Parliament that there was no proposal to consider any waiver of education loans.

It remains to be seen if this leads to better repayment.

Published on December 13, 2019

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