With nearly 9% of education loans being declared as non-performing assets (NPAs), public sector banks in India are now faced with the challenge of understanding the reasons for the defaults and taking corrective measures.
Data published by the Indian Banks’ Association (IBA) point towards an increasing trend of loan amounts being written off as NPAs in the education sector.
Looking at the stream-wise data on educational loans, it can be inferred that the nursing stream has churned out the most number of NPAs, followed by engineering.
|Stream||% of educational loans which become NPAs|
The CARE Ratings report states that rising tuition costs have made education loans a necessity. This, combined with lower salaries for nurses as evidenced by protests in several parts of the country, could be one of the factors leading to higher NPAs. Bottlenecks to going abroad for work, which is one of the key drivers in the nursing sector, could be another factor in rising NPAs.
Engineering, where nearly 10% of the loans become NPAs, has a bad placement record in recent years. Only about 46% of the students who graduated from government and private engineering colleges across the country in 2016-17 managed to get a job placement, according to data given in the Rajya Sabha in July 2018.
Regions with high default rates
A region-wise look at the data published in the report released by Care Ratingsin 2018 shows that Tamil Nadu and Kerala account for 36% of the outstanding education loans, closely followed by Maharashtra, Karnataka, Andhra Pradesh and Telangana. These States are characterised by high levels of literacy and willingness to pursue higher education, as observed by a high number of loans given for postgraduate courses in those States.
Why are PSB’S churning out NPAS?
The Care Ratings report says that public sector banks fund about 95% of the education loans in the country.
The loan amount of PSBs is often below ₹4 lakh, which implies that these loans do not require a collateral and are unsecured. The private sector banks and NBFCs on the other hand lend to students pursuing graduate studies and the loan amount for these is often over ₹5 lakh, which implies these loans are tied to a collateral and are secured.
This is one explanation for why PSBs have been increasingly churning out bad loans over the years. Among PSB’s, State Bank of India had the highest amount of NPAs from 2015-17. The amount of loans advanced by SBI declared as NPAs shows an increasing trend.
The issue has been raised in the Lok Sabha and the government has come up with measures to tackle rising NPAs. The government has modified the IBA model education loan scheme by including a buffer period of one year in addition to the course period before calculating commencement of repayment.
The modified scheme also accounts for spells of underemployment/unemployment during the period of the loan and extends repayment period so as to bring down the EMI.
The government also aims to provide guarantee for 75% of the defaulted amount through its Credit Guarantee Fund Scheme for Education loans.
The impact of the schemes as well as corrective measures however, can only be gauged through a change in the amount of NPAs in the coming years.