Banks are shying away from education loans as lending under this key segment has fallen for the second year in a row.

According to the Reserve Bank of India (RBI) data, the total outstanding portfolio under education loan had fallen by 2.2 per cent as of June 2019 year-on-year basis. Education loans disbursed under priority sector norms fared worse. In the same period, they fell by 9.3 per cent.

The decline in study loans has been consistent for the last two years. It fell by 1.4 per cent in June 2018 compared to the previous year in overall portfolio, while under priority sector segment the drop was 1.9 per cent.

Banks were bullish on education loans till FY2017. Compared to the previous year, portfolio under education loans went up by 3.1 per cent and 1.7 per cent in general loans priority sector, respectively in FY2017.

“There has been a significant decline in repayments from 2017 third quarter onwards in view of general downward trend in macro economic scenario and dip in placements. This has adversely impacted subsequent lending by public sector banks,” a senior State Bank of India official told BusinessLine.

Public sector banks (PSBs) account for about 94 per cent of the total outstanding education loans. In 2018, there was a sudden upsurge in bad loans in education segment as NPAs rose to 8.15 per cent in March 2018 against 7.33 per cent in the previous year.

There was also a rush among banks to sell bad loans to asset recovery companies. SBI, too, had put up ₹382 crore worth bad education loans for sale last year.

The data on overall increase in NPAs for the year ended March 2019 is awaited but the declining trend in disbursals shows that all is not well with the portfolio. While the RBI data gives an overall sense, there are individual variations in lending among different banks. For instance, for Canara Bank education loans went up by five per cent in the year ended March 31, 2019.

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