The ‘bad’ side of education loans

With SBI selling its portfolio of NPAs to an asset reconstruction firm, students feel the heat.

Updated - October 18, 2016 01:04 pm IST

Published - June 22, 2016 12:00 am IST - CHENNAI

With the State Bank of India selling a large number of its ‘bad’ education loans to Reliance Asset Reconstruction Company, defaulters have now started feeling the heat from the corporate giant.

To reduce the burden of their non-performing assets, banks resort to ‘asset reconstruction’. For instance, the State Bank of India, in 2015-16, wrote away Education Term Loans (ETLs) to the tune of Rs. 847 crore in three tranches to Reliance ARC.

The NPAs were sold for 45 per cent of the outstanding amount.

Such loan reconstruction means SBI transfers all the rights of ownership and collection of the loans to the ARC concerned.

Over the last few months, education loan defaulters have begun getting letters and calls from Reliance ARC to pay back their debt or face legal action. Jagan (name changed), who is currently in civil service training, received a letter from SBI two months ago stating that his loan had been transferred to Reliance and that he should credit the pending amount to the account of the company mentioned in the communication.

Election promise

The development assumes significance in Tamil Nadu, as the ruling AIADMK had promised in its election manifesto that the government would reimburse the education loans of students who were still unemployed. There is no clarity on whether loans taken over by Reliance would be eligible for the concession from the State as and when the scheme is rolled out.

Officials in the Higher Education Department are tight-lipped about it.

A Union Finance Ministry document of January 2015 says Kerala and Tamil Nadu together have extended close to 40 per cent of all student loans in India. In actual terms, banks in Tamil Nadu had given Rs. 16,381 crore, by far the highest in the country.

Documents obtained from the State Level Bankers Committee reveal that the total education loan NPA burden of banks in Tamil Nadu was Rs. 1,875.56 crore as on September 2015.

This was 11.55 per cent of all education loans forwarded, an increase from 11.33 per cent in June 2015.

Observers see a larger issue. C.H. Venkatachalam, General Secretary of the All India Bank Employees' Federation, says that with the explosion of engineering colleges in Tamil Nadu, the Gross Enrolment Ratio in higher education has shot up.

“The institutions actively encouraged the students to take up loans to complete their engineering studies. But given the low standard of these colleges, the students find it hard to get jobs and get caught in this vicious debt cycle,” he claims.

The trade union leader alleges that asset restructuring companies focus on student loans as they are “soft targets”.

Many defaulters who spoke to The Hindu on condition of anonymity were engineering graduates.

One such graduate from Vaniyambadi said he finished his engineering in 2009 but could not find a job for five years.

“Now, I have letters served stating that I need to pay up. I work in a local company for a meagre salary and don’t know how to handle this,” he said.

Not limited to T.N.

A bank can classify a loan as an NPA in case of a default in payment for more than 90 days after the moratorium period.

The Hindu has in its possession a number of internal circulars of the SBI detailing how to manage queries from a borrower whose loans have been sold off.

In Kerala, student loan takeover by Reliance from the State Bank of Travancore caused a furore last year.

According to Mr. Venkatachalam, following protests from students and activists, the State government had recommended the bank not to sell off the NPAs.

Over last few months, defaulters have begun getting letters from Reliance ARC to repay or face action

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