Falling rupee, higher costs, push up education loan size

  • Mahua Venkatesh, Hindustan Times, NewDelhi
  • Updated: May 29, 2015 13:49 IST

With the erosion in value of the rupee and the rising cost, the average education loan size has gone up 33%, from `4.5 lakh to `6 lakh, within a period of a few months.

The average sanctioned amount in 2014 was `6 lakh, while in 2013 it was about `4.5 lakh, a report by rating agency Credit Information Bureau India Ltd (Cibil) revealed.Education loans are typically seen as high-risk lending.

The Reserve Bank of India has warned banks that this could lead to an increase in their bad assets. The Indian Banks Association (IBA) has also asked lenders to restructure loans wherever applicable, and even provide top-up loans to ensure they don’t slip into the category of bad assets.

The report further showed that in the third quarter of 2014 loans larger than `5 lakh were around 30% of the total sanctions, while in the third quarter of 2012, they were just 22%.

“Education loan defaults is a grave concern for banks, specifically for the public sector banks,” Harshala Chandorkar, senior vice-president, consumer services and communications, CIBIL said.

Under the priority sector lending norms, banks have to lend up to 40% of their overall credit to various key sectors, including agriculture and education.

IBA chairman TM Bhasin said that while there could be a spurt in non-performing assets arising from the education loan segment, banks have been asked to monitor this area carefully.

“Banks can also restructure their loans wherever they feel that the loan can be turned productive, we are also providing top-up loans to students even if they have been unable to pay up their existing amount, so that there education does not have to stop and finally they get jobs, which in turn will help in repayment,” Bhasin said

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