MAKING THE CUT: Banks decide to play it safe in the face of rising number of non-performing assets, says N. Ravi Kumar

As yet another admission season gathers momentum, the buzz is back in banks with scores of students applying for education loans. Students walking in clutching a bag with their credentials, parents in tow, the air filled with expectation, suspense and anxiety — quite stereotypical, except that this year, banks have decided to make the selection more stringent.

The decision to play it safe is a marked change and comes amid concerns of rising non-performing assets (NPAs) in the education loan portfolio.

An indication of things ahead is evident from the revised model of the education loan scheme unveiled by the Indian Banks’ Association (IBA). Keeping admissions under management quota out of scope of the scheme is among the changes. This would cover all courses, including nursing courses. While computing the loan amount, scholarship/fee waiver available to the student would be taken into account.

Merit pays and it would also count while seeking education loans. According to the revised model scheme, “banks could consider rating educational institutions and students, as a tool for improving asset quality.” The revised guidance note, released simultaneously, hints at the need for banks to use the external data on educational institutions to create rating matrix.

“Similarly, along with the rating of institutions,” banks could also attempt rating of students. Academic record and ranking in the selection test would be core for the initial rating. To this, the academic record during the study period could be added to revise the students rating from year to year.” It would be open for the banks to offer differential interest rates based on rating of courses/institutions/students.

A senior official of State Bank of India said that many of these changes would take effect this year. On the issue of excluding students who are admitted under management quota, he said the bank was studying a judgment of the Madurai bench of the Madras High Court against such a move.

At the heart of these changes are NPAs, which, according to IBA Chief Executive K. Ramakrishnan, are around 5.5 per cent. The educational loan portfolio of banks is around Rs. 50,000 crore, and in terms of accounts, it is 25 lakh.

Admitting that the NPAs were certainly going up, Dr. Ramakrishnan, however, said: “Let’s not read too much into the issue. The banks are having problems. They are tackling it, and are on a recovery spree. It is like any other loan. These [issues] are not expected to have a bearing on disbursements.”

With regard to the trends, the South dominates in the offtake. “It is possibly because there are more engineering colleges here, and secondly, more importance is given to education,” he said.

Education loan, according to M. Narendra, chairman and managing director, Indian Overseas Bank, “is concentrated in the four southern States and Puducherry, too. We have also advised all other regional offices to sanction education loan liberally.”

What is an advantage for the region also seems to be posing a problem for the banks. According to an SBI official, though a committee had prescribed fees for Anna University and other private colleges, many of the colleges demand more under various heads, including transport and food.

Stating that the NPAs exceeded 40 per cent for some branches, he said the bank had made PAN card mandatory for students as a measure to curb wilful defaults.

On the reasons for the increase in NPAs, he said, while some students did not get employment, others got jobs where the salaries were not sufficient to repay.

This year, a senior executive of Karur Vysya Bank said, would be a turning point for education loans since the salaried class was under stress on account of high inflation. “Households are unable to handle unforeseen expenditure without defaulting on EMI (equated monthly installment) repayment and this is the case with all retail loans.

For the banks, there is nothing much that they could do other than being cautious. “With no major credit offtake, we are turning to retail advances to salaried class and small traders,” he said.

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