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Torn between the Government's keenness that the youth should get loans for pursuing vocational courses under the bank-wide model educational loan scheme and rising bad loans, bankers' have come up with a via media which will not only satisfy the authorities but also take care of their concerns on loans turning sour.
They have suggested to the Finance Ministry that loans for vocational courses for skill development should be classified as loans to the micro and small enterprises (MSE) segment.
Once loans for vocational courses are classified as MSE loans, banks will draw comfort from the fact that they will have recourse to the Credit Guarantee Fund Trust for Small and Medium Enterprises (CGTMSE) should a borrower default.
‘MSE' tag
Since the Ministry is yet to take a call on setting up an institution for guaranteeing education loans given under the model scheme of the Indian Banks' Association, bankers say it would be in the interest of the banking system if loans for vocational courses are classified as MSE and not education loans.
Flagging the concern on the asset quality front, bankers say many students taking education loans to pursue professional courses from private colleges either get jobs which are not remunerative or don't get a job immediately after completion of the course. This situation gets accentuated during an economic downturn, thereby affecting loan repayment. “Loans for vocational courses could be considered as indirect credit to the MSE sector as the youth availing themselves of these loans are likely to set up micro-enterprises,” said a banker clued in to the suggestions made by IBA's committee on education loans. This committee is headed by Indian Bank Chairman and Managing Director, Mr T. M. Bhasin.
Mr Parag Patki, CEO, Small and Medium Enterprises Rating Agency, said micro-enterprises started by young entrepreneurs who have undergone vocational training, could be suitably graded by credit rating agencies so that they can get timely and adequate credit at lower interest rates.
Self-employment mantra
The Prime Minister's Office wants 25 lakh youth to get trained in technical skills that will enable them to take up self-employment or set up micro-enterprises in agriculture and allied activities, industries, services, and business activities in the coming three years.
At an average financial assistance of Rs 12,000 per head, it is estimated that the banking sector will need to give credit aggregating Rs 3,000 crore for vocational courses.
As per the National Skill Development Policy, India has set a target of skilling 50-crore people by 2022 while the current capacity of skill development programmes in the country is a mere 31 lakhs.
The Confederation of India Industry has projected an aggregate requirement of 8.10- 8.38 crore skilled workers by 2015 in sectors such as auto, construction, retail, healthcare, banking and financial services, creative industry and logistics.
As on December-end 2011, banks reported a 13.8 per cent year-on-year growth in education loans to Rs 49,210 crore (Rs 43,230 crore as on December-end 2010). They recorded a 11.1 per cent y-o-y growth in MSE loans to Rs 4,82,540 crore (Rs 4,34,480 crore).
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