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Tuesday, September 7, 2010

Education loan defaults rising

Education loans, a segment with lowest defaults among all other retail loans so far, have seen a sudden spurt in NPAs (non-performing assets) due to the shrinking job markets following the global economic meltdown.

The defaults have been higher in loans below Rs 4 lakh, which are given without any collateral, according to senior bank officials.

Indian Bank, for instance, has bad loans worth Rs 80 crore on its books as on June 30, 2010, according to its Chairman and Managing Director, Mr T.M. Bhasin. “We have witnessed some loans in the below Rs 4 lakh category going bad recently. We are tracking the students and trying to work out the recovery methods. The rise in delinquency is due to the lack of proper placements on completion of the course,” Mr Bhasin told Business Line.

The bank's education loan outstanding was at Rs 2,700 crore as on June 30. The bank plans to extend the tenure of loan to help the students repay the amount.

“We are planning one-year relaxation in order to give some breathing space to the students,” he said. Banks are also encouraging students to look at alternative job options such as BPOs in order to help them repay the loan on time.

“Though no cases of NPAs have been reported as yet, there is a cause for concern as in some cases it is difficult to track the students. But banks are taking a cautious approach,” said Mr K.R. Kamath, Chairman and Managing Director, Punjab National Bank.

The defaults have been higher for loans given for courses in B-grade engineering or management colleges as these do not guarantee assured placements, said a senior official at a public sector bank.

State Bank of India, Bengal Circle, has also witnessed a rise in NPAs from such loans. “There has been a clear rise in NPAs from such loans; so, we are stepping up the recovery methods. Students already get a one year moratorium on such loans. This can further be extended to 18-24 months depending on the case,” said Mr Sureinder Kumar, Chief General Manager, SBI, Bengal Circle.

The Circle registered 40 per cent growth in educational loans at about Rs 405 crore (Rs 289 crore) as on March 2010. The total loan outstanding for the bank was at Rs 450 crore as on date. The level of NPAs increased to about 4.27 per cent (three per cent) as on June 2010.

Talking about the growing defaults in the educational loans segment, a senior official at UCO Bank said, “Though our data do not reveal a rise in NPAs from educational loans, the industry has witnessed a rise in delinquencies. So we are being cautious and have already alerted our branches to take necessary measures to step up the recovery process.”


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