The figures speak for themselves. As on July 21, 2015, the total exposure of all banks to education loans was Rs 64,900 crore, according to RBI data. On an average, banks face an 8% default on this portfolio – that is Rs 5,192 crore.
Sluggish job creation in the country is seeing students turning out to be the largest loan defaulters. Students from the southern states of Kerala and Tamil Nadu are the ones who are giving bankers sleepless nights, with the latter leading the defaulters list.
The figures speak for themselves. As on July 21, 2015, the total exposure of all banks to education loans was Rs 64,900 crore, according to RBI data. On an average, banks face an 8% default on this portfolio – that is Rs 5,192 crore.
Public sector banks are the worst-hit, as they are mandated by the government to give collateral-free loans. Private banks do not extend education loans. Bankers say moves are afoot to take collateral from the two southern states.
For the largest bank, State Bank of India (SBI), the default rate is 5%. The SBI's default rate for its home loans is less than 1%. Even in the other portfolios of the bank, the default rate is about 3-4%.
For Bank of Baroda, the default rate on student loan is as high as 8.2% on a portfolio of Rs 2,100 crore. Its overall retail loan default is much lower, at 2.4%, and the home loan defaults is 1.64%. The same rates are replicated at most banks, with the Union Bank of India reporting a default rate of 6.5% and Canara Bank 8%. State Bank of Travancore, which is headquartered in Thiruvananthapuram, is affected the most, with a default rate of 12%.
A senior SBI official said: "Repayment is better in cases where borrowers are settled abroad as they generally get good employment and are able to repay their dues. Also, such loans are backed by collateral security. Students are very mobile. They move away from their place of study and it becomes very difficult to trace them. So, now we are insisting on PAN/ Aadhar details of the borrower/ co-borrower. In addition, we are ensuing that the names of defaulters do appear in the CIBIL database."
All public sector banks are mandated to run the Student Loan Scheme, based on the Model Education Loan Scheme of Indian Banks' Association (IBA). Under this model, loans up to Rs 4.5 lakh are extended without any collateral security, with just a co-borrower around. For loans above Rs 4.5 lakh and up to Rs 7.5 lakh, banks seek third-party guarantee. For loans above Rs 7.5 lakh, students need to submit collateral security. Delinquency is highest in the bracket up to Rs 4.5 lakh
"Tamil Nadu leads the default list, followed by Kerala, Andhra Pradesh and Odisha. These states have management courses and students are unable to secure jobs that will take care of their EMIs," a senior Bank of Baroda official said. The bank has not kept any limit on its education loans.
According to a Union Bank of India official, "About 35% of the bank's Rs 3,200 crore portfolio is lent to the southern states, where the maximum defaults occur. Loan requests are the highest from these states and we do not refuse education loans."
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