Education Loan: Offer to increase collateral limit to Rs 10 lakh

THE CENTER is likely to raise the guarantee limit for education loans from Rs 7.5 lakh to Rs 10 lakh, a move that comes against the backdrop of a government-led push for public sector banks (PSBs) to increase disbursements amid complaints of delays in sanctions. and rejection of loan applications.

Currently, education loans up to 7.5 lakh are backed by a credit guarantee fund, which means banks do not seek any collateral for loans up to the guaranteed amount.

The Indian Express has learned that the Finance Ministry’s Department of Financial Services has initiated consultations with the Education Ministry to increase the guarantee limit by 33 percent. This move would bring the limit on par with the general cover in some regions, such as Delhi and West Bengal, where state government schemes offer additional cover to increase the total cover to Rs 10 lakh.

“The Department of Financial Services is in favor of increasing the collateral-free limit for education loans and they are in talks with the Education Ministry to agree on an increase, which could be Rs 10 lakh or more,” official sources said .

On September 1, the Indian Express had reported that with PSBs wary of disbursing low-value education loans citing rising defaults, the government had asked them to increase disbursements, pointing to multiple complaints of “delays” in the sanctions and denial of loans to “fragile land”.

An increase in the guarantee limit is expected to push banks to overcome any reluctance to lend amid a rise in low-value education loans turning into non-performing assets (NPAs).

Under the procedure, unsecured loan borrowers (currently up to Rs 7.5 lakh) have to pay a nominal fee for loan insurance. That rate could be raised marginally to fund an increase in the borrowing limit, sources said.

Finance Ministry spokesman and secretary of the Department of Financial Services Sanjay Malhotra did not respond to emails or messages sent by The Indian Express seeking comment on the proposed move.

The Indian Express had earlier reported that banks had slowed lending on education loans, prompting complaints from various sectors, including “VVIP references”. This had prompted the Department of Financial Services to convene a meeting of all 12 government-owned banks on August 25 to discuss disbursement targets for education loans.

The government is targeting PSBs to provide over Rs 20,000 crore as education loans for the current fiscal, with banks meeting 19 percent of the total target by the end of the first quarter. The Government wants the banks to start lending more in order to achieve this goal.

A representative of the bank at the August meeting had asked the Financial Services division to ensure uniformity in collateral for education loans.

According to the minutes of that meeting, obtained by The Indian Express through an RTI application, the “representative highlighted that currently credit guarantee funds for education loans provide a guarantee of up to a loan of Rs 7.50 lakh, while under some of the State Govt. Schemes like Delhi, West Bengal etc, the guarantee cover is available up to Rs 10 lakh.”

It was suggested that the Association of Indian Banks “may initiate consultations with all PSBs to explore the possibility of extending insurance coverage uniformly to all students,” the minutes noted.

About 90 percent of the country’s education loans are disbursed by PSBs. According to official data updated till June 30, 2022, about eight percent of education loans disbursed by PSBs have turned NPA. In contrast, gross NPAs in the banking sector fell below six percent in March 2022, the lowest since 2016, and net NPAs fell to 1.7 percent during the same period, according to the data cited by RBI Deputy Governor M Rajeshwar Rao in July. .

Data from CRIF High Mark, an RBI-approved credit bureau, showed that most of the disbursement of education loans occurred during the first period of the pandemic with more than 3 lakh new borrowers registering between March and October of 2020. There was also a disbursement of Rs. 11 billion in loans by education companies through the end of September, according to data released by the bureau in March 2022.

Leave a Comment

+1 631-259-7728
WhatsApp chat +1 631-259-7728
WHATSAPP US, WE'LL RESPOND
WE WRITE YOUR WORK AND ENSURE IT'S PLAGIARISM-FREE.