Planning to study abroad? Weak rupee to make loans costlier
Foreign education to cost more as rupee hits 2-year low, but vacationing abroad may not pinch muchbusiness Updated: Nov 30, 2015 18:05 IST
The steep fall in the rupee to a two-year low will make loans costlier specially those related to education, but the impact on tourism will be limited as travel plans are booked well in advance.
On November 27, the rupee plunged to 66.76 against the dollar mainly due to a pullout by foreign funds following reports of the US Federal Reserve’s plan to raise interest rates in December. This would strengthen the dollar and FIIs, expecting higher returns would prefer to invest in the American greenback.
The rupee fell 0.3% on Friday, after touching 66.88 in intra-day trade, before closing at 66.76, the lowest since September 2013. The rupee is down 2.2% so far in November, the steepest fall for any Asian currency during the month.
A weak rupee will force students travelling overseas for studies, to borrow more. Banks, already hit by a surge in bad loans, will also put in place a more stringent process to screen credentials and repayment capacities of students to prevent further rise in non-performing assets (NPAs) — loans that do not yield returns.
“Banks must ensure that there is no more pressure on NPAs. The rise in cost of education abroad would mean that students have to go for larger-sized loans with higher EMIs and defaults must not be allowed to happen,” said Soumya Kanti Ghosh, chief economic adviser, State Bank of India.
RBI governor Raghuram Rajan had in the past admitted that there were a lot of bad loans in the education sector. “They have been rising in the last few years. It’s a matter of concern.” Banks should devise these loans in a flexible manner, providing options such as automatic moratorium if borrowers are under a period of unemployment, Rajan had suggested.
While education loans are tax friendly as the interest paid on such loans can be claimed as deduction under Section 80E of the Income Tax Act, KPMG partner Vineet Agarwal said, “The depreciation of the rupee would mean that the loan amount would get bigger and this is not good for many Indians who have limited assets to mortgage for taking loans.”
A weak rupee, however, has not impacted foreign travel too much. “Over 90% leisure travellers book well in advance, so flight tickets and hotel bookings are taken care of. Expenses incurred on food and sightseeing increase,” said Rajji Rai, former president, Travel Agents Association of India.
On a year-on-year basis, foreign travel has gone up in the last three years, said Ranjeet Oak, chief business officer, holidays, travel portal MakeMyTrip.