Thursday, July 14, 2011

Students' degrees could soon brand them defaulters

If you've defaulted on repaying an education loan, soon that fact could be stamped on the back of your degree or diploma certificate. The Indian Banks' Association (IBA) is said to be considering such a proposal to bring down non-performing assets (NPAs) in education loans.

Three-pronged strategy
“We have suggested a three-pronged strategy for the revised scheme. This includes tracking the student and creating a special credit guarantee fund for the education loan, besides stamping the certificate,” the chairman and managing director of a nationalised bank said. The scheme will need the nod of both the Ministry of Finance and the Reserve Bank of India before it can be introduced, added the chief executive of another bank.

Educational institutions are divided over this proposal. The Executive Director and Dean of Manav Rachna University, Col. (Retd) V. K. Gaur, says, “It is not a good idea. Procedures for taking education loan are already very lengthy. Banks take more and more precautions, now one more provision will make life difficult for the students.” He is apprehensive that stamping of certificates could be another way to exploit students.

On the other hand, Prof. C. P. Singh, Professor-in-Charge of University School of Mass Communication, Guru Govind Singh IP University, supports the new proposal. He says, “If the certificate carries a stamp, what is wrong in it, if your conscience is clear, you would like to pay on time.”

Finalisation of scheme
The revised scheme is likely to be finalised within the next two months. Sources told Business Line that the initial structure of the revised scheme was discussed at a review meeting of public sector banks held last Friday. Bankers are worried about the rising trend of NPA in education loans. Though they are not giving the exact percentage of standard assets turning into NPAs in the category, declining year-on-year growth in terms of accounts added and outstanding amount say a lot.

Bankers say that the new system would require active co-operation from educational institutions for which specific instructions from the Ministry of Human Resource Development (MHRD) will also be required. There is a strong possibility that a special credit guarantee fund will be created for education loans.

The size of the fund could be Rs. 5,000 crore (Rs. 50 billion). It was also suggested that the loan repayment tenure should be increased to 15 years from the existing seven years. Though it was felt that such an option would increase the rate of interest, providing this option has not been ruled out.

Source: The Hindu Business Line, July 14, 2011
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