Increase student loans: recommendations from the Nair committee
Banks are concerned that non-performing assets in education loans are as high as 6%. Meanwhile, SBI, the largest public sector lender, announced a cut in interest rates on education loans to 1%
The committee formed by the Reserve Bank of India (RBI) to review the existing classification and suggest revised guidelines for priority sector loans, recommended an increase in the loan limit for education loans by Rs5 lakh.
The committee headed by MV Nair, chairman of the Union Bank of India, in a report suggested that this limit in the priority sector for loans for study in India could be increased to Rs15 lakh and Rs25 lakh in case of studies. abroad, compared to the existing limit of Rs10 lakh and Rs20 lakh, respectively.
The RBI has requested comments on the Committee’s report.
Redefine the scope of student loans by removing the limits and setting it on the basis of parents’ income, covering professional development and skills within its scope and creating a credit fund to cover the risk of failure were some of the suggestions received by the committee.
There is no suggestion on the loan up to Rs4 lakh, given without any collateral or collateral. Experts say this category also has the highest number of defaults.
Non-performing assets (NPA) in education loans can reach 6%. To reduce NPAs in education loans, the government is considering the possibility of creating a credit guarantee trust.
Last year, the Association of Indian Banks (IBA), which formulated the education loan policy model, recommended the establishment of a credit guarantee fund to deal with the problem of increasing defaults in the category of loans of up to Rs4 lakh. The committee said it was under consideration.
Recently, IBA asked lenders to impose stricter conditions on loans granted to students admitted under the management quota. “Any loan envisaged by the banks for students admitted within the framework of the management quota would be outside the model scheme. Banks can set appropriate terms and conditions for such loans, ”IBA said in a guidance note.
Experts say there is a need to address the issue of student loans within a management quota, as it could impact a large number of students opting for admission through this route.
According to Prashant Bhonsale, country manager of Credila Financial Services, a private lender specializing in education loans, “While the movement is in the right direction given the risk factors from a lender’s perspective, risk management is necessary. framework for loans to these average students.
An official at a Mumbai-based public sector bank, which has seen a 16-17% growth in the education loan portfolio, confirmed that “it is up to each bank to decide on student loans under management quota. It will not be the policy of the IBA. We are looking at it. I can’t do anything right now.
Under current guidelines, banks lend up to Rs4 lakh without any collateral. But for loans between Rs4 lakh and Rs7.5 lakh, they can ask for personal guarantees, and for a loan above Rs7.5 lakh, a guarantee is required.
After apex bank eased monetary policy, the State Bank of India, the largest public sector lender, announced that interest rates on education loans were cut to 1%.