Thursday, July 14, 2011

Panel on education loan suggests creation of credit guarantee fund

Creation of a credit guarantee fund, extension of the tenor of repayment and moratorium period of educational loans are some of the key recommendations of the expert committee on education loan scheme constituted by the Indian Banks' Association (IBA).

The committee has submitted its recommendations to the Finance Minister, Mr. Pranab Mukherjee, and the draft paper on the education loan scheme is likely to be released in a month's time, according to Mr T. M. Bhasin, Chairman and Managing Director, Indian Bank. The expert committee was set up by IBA under Mr. Bhasin to modify the education loan scheme launched in 2001-02.

“We have recommended the creation of a credit guarantee fund. A portion of the funds in the corpus could come from the government and a portion from banks. A certain portion of the premium on loans could also be set aside in the corpus,” Mr. Bhasin told Business Line. Banks have been urging the Centre to set up a credit guarantee fund on the lines of the fund created for the MSE (micro and small enterprises) by the Government and SIDBI (Small Industries Development Bank of India).

Concerned over the rise in defaults of educational loans, banks have been trying to rework some of the existing norms on such loans. The cumulative outstanding under education loans for all banks stands at about Rs. 45,000 crore (Rs. 450 billion) as on date and the defaults are in the range of three-to-five per cent, Mr. Bhasin pointed out. The defaults are higher on loans below Rs. 400,000, which are collateral free.

The committee has suggested extension in the repayment period of education loans from five-seven years now to10-15 years to facilitate repayment and reduce the probability of default. “The moratorium period on such loans is typically six months. We have suggested it to be extended to one year,” he said.

Source: The Hindu Business Line, July 14, 2011
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