Increase in priority sector lending threshold for education loans may not help: experts

The Reserve Bank of India (RBI) on Friday increased the threshold for education loan under priority sector lending to not exceeding ₹20 lakh from the earlier ₹10 lakh. However, experts said this may not help the students much, unless the model education loan scheme is relooked at.

Banks have to set aside a specific portion of their lending to sectors which are deemed important by the RBI, under the priority sector lending guidelines.

“Loans to individuals for educational purposes, including vocational courses, not exceeding ₹ 20 lakh will be considered as eligible for priority sector classification. Loans currently classified as priority sector will continue till maturity,” the RBI said in its revised priority sector lending guidelines issued on Friday.

“This alone won’t help in increasing the disbursement and access to education loans for students. The model education loan scheme run by The Indian Banks Association has to be revised,” said Educational Loans Task Force convenor K. Srinivasan.

The Indian Banks Association has a Model Education Loan Scheme under which loans up to ₹10 lakh are offered for higher education in India and ₹20 lakh for studies abroad. Under the Central Sector Interest Subsidy (CSIS) scheme, full interest subsidy is provided for the moratorium period (course period plus one year) on education loans of up to ₹7.5 lakh, taken from scheduled banks. The benefits are applicable to students from economically weaker sections (EWS) with parental income of up to ₹4.5 lakh per annum.

Tamil Nadu is the top state in availing education loans, where NPA in education loans under priority sector lending as of March 2020 was ₹3471.26 crore or 22.34%, according to data from State Level Bankers Committee- Tamil Nadu.

Parijat Garg, vice-president, CRIF High Mark, a credit bureau, said banks have been increasingly sluggish on the educational loan segment not only in Tamil Nadu, but also nationally due to the high levels of NPAs. At national level, the bank credit towards education loans has seen a 3% decline.

“The current economic uncertainties may mean job losses for many employed and delayed jobs to recent graduates. This will put further pressure on Education Loan NPAs. The college admissions have been delayed, so the demand for educational loans will also be delayed. Usually there used to be a surge in the first quarter,” he said.

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Printable version | Oct 20, 2020 11:25:44 PM |

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