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You may now get more time to repay your education loan

To tide over the crisis of shrinking job market, banks are looking to extend the repayment period of education loans and even mulling the option of providing a repayment holiday for the first few months or a year. Mahua Venkatesh reports.

india Updated: Sep 03, 2013 01:55 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times

You are likely to get more time to pay back your education loan.

Weighed by an economic slowdown and a shrinking job market, defaults on education have risen sharply in the last few months. To tide over the crisis, banks are looking to extend the repayment period and in some cases even mulling the option of providing a repayment holiday for the first few months or a year.

The repayment cycle of education loans begin only once the student who availed the loan gets a job. In today’s scenario, fresh passouts are finding it increasingly difficult to secure placements.

Finance minister P Chidambaram has directed banks to focus on increasing disbursement of education loans and even provide additional top-up loans to students for further studies.

Lending norms for education purpose – vocational and otherwise – have also been simplified.

The level of bad assets in education loans is currently over 5%. It was just 2% four years ago.

“We cannot just take the example of one bad year, education loan is given keeping in mind a longer horizon and the process in being monitored at the central levels by all banks, no bank can reject an education loan, if all criteria are met,” M Narendra, chairman and managing director, Indian Overseas Bank told Hindustan Times.

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

The rupee’s depreciation and the inability of students to get jobs immediately is making it more challenging for banks, said Ashvin Parekh, national leader, global financial services, Ernst & Young.

“However one way to look for a solution is to ask companies to come forth and take this as part of their corporate social responsibility by adopting a few students and stand as guarantor.”

Bankers admitted that students seeking high loan amounts of above Rs. 15-20 lakh for overseas studies are being carefully screened.

The falling rupee has made loans more expensive for students studying abroad, said Nirupama Sounderajan, additional director and team lead, financial sector, Ficci.

The total outstanding amount under education loan for banks was estimated at Rs. 43,074 crore in 2011, which touched over Rs. 51,000 crore in 2012 according to official data.

Besides the finance ministry has also directed banks to provide loans to those going in for vocation training, irrespective of their age.

First Published: Sep 02, 2013 23:03 IST