Education loans and rising NPAs

Education loans are meant to give that much needed relief to parents who are caught in a financial tight corner but want to give their child the best in terms of education. In India, education is the only vehicle to empower a child for the future and that is why, people from all strata of life want to educate their child, give them a decent college education and ensure that their child does not need to go through what they are going through.

And banks in India have played a major role in pulling out many households out from the poverty trap by providing education loans at very nominal and at one time, zero percent interest. But sadly, this loan is getting abused. As much as 10 per cent — around Rs 7,900 crore — of the total education loan corpus of Rs 79,000 crore have been categorised as overdue or active loans which are 90 days past due. Nearly seven per cent, or Rs 5,530 crore, of the education loan portfolio has already been declared as NPAs by the banks. The private sector banks have almost stopped providing education loans and 95% of these loans comes from the PSU banks only.

The repayment in education loan is supposed to come out of the future income generation of the student after getting employed.  But with the cost of education going up, there is a growing mismatch between the monthly generation of income and the commitments on account of repayments. This plus growing unemployment is adding to the growing NPAs of education loans.

The average ticket size of education loans has doubled in last five years to nearly Rs 5 lakhs from Rs 2.5 lakhs with higher education getting costlier by the day. Many students are taking courses outside India, which invariably are more costly and over Rs 7.5 lakh. Loans to study abroad are backed by securities and therefore NPA are less in this category.