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Education loans, once a favorite of Indian banks, haven’t risen on their books in the last few years. In reality, the exposure has been diminishing. The unpaid loans, as of November 2019, dropped to Rs 66,902 crore compared to Rs 71,975 crore in September 2017. On a year-on-year basis, the bank’s education loan portfolio declined by 3.5 percent in the 12 months to November 2019. In absolute terms, the sum is not very high.
However, the pattern gives some insight into the state of the economy. There was a time when banks used to bid to increase their student loan holdings, sometimes launching campaigns as well. What has changed in the last few years? Of course, banks are slashing loans as demand slows down or when bad loans from that particular sector tend to increase. In the case of education loans, both aspects seem to have played a major part. Banks have been extra diligent to prevent new NPAs, said the senior banker on anonymity.
Prior, the pressure of growing their education loan portfolio was on the banks. But, now banks are free to make their decisions based on the benefits they will have and approve the loans of the students who are more likely to repay them the amount.
The most likely reason for the decline in student loans is its direct connection with the economy and the work market. As students borrow big loans from banks to pay their college fees and find it hard to get work opportunities afterward, repayments suffer. In India, banks cannot ask students for collateral of up to Rs 4 Lac. For loans up to around 4 lac rupees, banks cannot ask students for collateral in India.
The consensus among bankers is that most defaults occur in loans that are lent to low-paying workers, claiming nursing courses where wages are too low. It is getting impossible for students to make enough money to spend on their personal needs and have the money to pay back to the banks. One-fifth of the NPAs (non-performing assets) derive from loans to nursing courses, followed by engineering courses. According to industry reports, the NPA in the education sector soared to 8.97 percent at the end of March 2018, compared to 7.29 percent in March 2016. Bad loans of PSBs in the education sector stood at 5.70 percent in March 2015, according to official data. They are mainly in the books of public sector banks.
Above Rs 4 lacs and up to Rs 7.5 lacs, lenders can rely on a personal guarantee and on loans that go beyond some kind of collateral, but all these rules are negotiable depending on the amount of money and past academic records.
No security of job or money
With unemployment at a 45-year high and the economy slowing every passing quarter, NPAs in this segment are likely to rise further.
One explanation for NPAs going up is that the job situation is getting worse. There are no jobs for students who finish courses paying big tuition. This leads to defaults and makes banks extra vigilant,” said Madan Sabnavis, an economist at the CARE rating agency.
According to CMIE’s Mahesh Vyas, the unemployment rate increased to 7.5 percent in September-December 2019, marking the seventh consecutive round of surveys to report a rise in unemployment since May-August 2017, when the unemployment rate was 3.8 percent.
In addition to the lack of job options on the domestic market, reforms in immigration regulations and a recent surge of protectionism across developing countries have also limited the flow of students to countries like the US. A third explanation may be that fewer students are enrolling in engineering courses.
The Industry Standard report recently observed that enrollment in engineering courses at Indian colleges and universities decreased from 4.25 million in 2014–15 to 3.77 million in 2018–19. The pattern of rising student debt bad assets is not special to the Indian market. Globally, banks are seeing the pain in their research loan portfolio.
There can be many reasons that can be a cause for your loan request getting rejected. Your past academic performance, admission to an unknown university, type and nature of course that you are pursuing, Lo-Credit score of the co-applicant, etc. can be some reasons why your application might have been rejected. But, if you are denied an education loan despite a good profile. You can ask the bank for a reason for non-sanction. If you do not find the reason to be valid, you can contact the regional branch office for redressal.
On the other hand, The students who are getting loans should focus on building a corpus during extra time that is provided after their graduation ends. This can also help them with repayment on time and save them for any issues that they might face in the future.
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