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Education loans get tougher as banks increase scrutiny

india Updated: Sep 27, 2013 03:04 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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Planning to take an education loan and go abroad for higher studies? Chances are that you may have to go through more scrutiny than before.

Due to the current economic slowdown and a depreciating rupee, cases of defaults on such loans are rising sharply and banks have decided to go through a rigorous screening process for students seeking high amounts.

"While we are trying to provide education loans to all who seek it for studies here and the loan amount is not very large, those who seek more large-sized loans of Rs 20 lakh or more are being scrutinised carefully," a chairman and managing director of a private sector bank, who did not wish to be identified, said.

The depreciating rupee has made loans all the more expensive for students wishing to pursue higher studies abroad. "With this kind of a scenario where the GDP growth rate has been 4.4% for the first quarter and no immediate likelihood of the economy picking up, job would be fewer and repayment chances could get even tougher," Nirupama Sounderajan, additional director and team leader, financial sector, FICCI, told HT.

The repayment cycle of such loans starts only once the student gets a job.

The government is also looking at a proposal to set up a credit guarantee fund to address the issue of rising non-performing assets or bad loans in this segment.

"Due to a depreciating rupee, students seeking to go abroad for higher education would now have to go in for a much larger loan size," a senior official at rating agency Credit Information Bureau India Ltd (Cibil) said.

However, there's also a silver lining. Banks are now looking to extend the repayment period and also provide a repayment holiday in certain cases for the first few months or even a year.