Adding safety-free education loans to the multi-sector state-supported loan program that is being introduced would help lenders offset losses, Banker said.
In the education loan segment, which has one of the highest defaults, there could be some buffer if the government puts it in the Emergency Credit Line Guarantee Scheme (ECLGS), the bankers said.
“The entire educational loan portfolio has a 9.55% NPL rate, which is higher for loans up to ₹4 lakh, where no collateral is needed, “said a private banker on condition of anonymity.
So far, banks and non-bank financiers have loans of ₹2.69 trillion to 11 million small businesses under the ECLGS. The spending, Union Finance Minister Nirmala Sitharaman said on Jan. ₹4.5 trillion of ₹3 trillion.
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The banker quoted above said that last year the Reserve Bank of India (RBI) also allowed lenders to loan education loans of up to. to classify ₹20 lakh as senior sector loans. Although there are incentives to lend to this sector, lenders are not very keen to fear lending below a certain threshold as they fear default. Education loans up ₹4 lakh do not require any collateral, while education loans of up to ₹7.5 lakh can be obtained with collateral in the form of a suitable third-party guarantee. However, education loans above ₹7.5 lakh require tangible collateral.
The state governments are pushing their own forms of guaranteed loans, but experts are concerned about their implementation as the banks have a uniform national credit policy. Last week the West Bengal cabinet approved a plan to secure education loans of up to ₹10 lakh and allow repayment in 15 years. Prime Minister Mamata Banerjee was quoted by the PTI news agency as saying that the loans are available for undergraduate, postgraduate, doctoral and postdoctoral studies in India or abroad. A similar program was launched by the Delhi government in 2015.
“The pre-Covid recession and the impact of the Covid-19 pandemic on education and employment opportunities have deepened, with default rates hitting 9.55% recently,” said Adhil Shetty, chief executive of marketplace financial services at BankBazaar .com.
“Although there is a percentage default on student loans, we hope that government intervention in the form of loan guarantee programs specifically designed for educational loans will ease the situation significantly,” Shetty said.
India’s outstanding student loans totaled ₹89,884 crore as of December 31, 2020, according to data presented in Parliament.
In West Bengal, Bihar, Jharkhand, Odisha, Sikkim and Andaman and Nicobar Islands, a total of 14.21% of education loans fell due, the highest among the regions. This is led by Bihar, which has a bad debt rate of 25.76%, the data showed.
According to K. Srinivasan, the convener of the Educational Loans Task Force, it is not clear how such state-specific guidelines are implemented by lenders. This is an association that guides deserving and poor students in obtaining bank loans for higher education.
“Banks may not be able to fully rely on state governments’ pledges to guarantee such loans, causing lenders to be reluctant,” said Srinivasan.
There is currently a central government program that covers the interest burden for students from economically weaker classes who want to pursue technical or professional courses, he said.
Interest starts accruing immediately after the loan is drawn, but the government grants a 12-month moratorium until the course is completed and pays the interest during that period.
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source https://collegeeducationnewsllc.com/lenders-seek-collateral-free-edu-loans-inclusion-in-eclgs/
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