Friday, August 05, 2011

State-run Banks Yield to Government: To ease study loan rules

At a time when rising defaults from education loans are haunting Indian state-run lenders, the government has asked banks to increase their share of such loans in total credit portfolio. Under pressure from the government, banks, that had turned reluctant to fund more students, have decided to revamp their education loan schemes by increasing the credit tenure and funding more than one person per family for loans up to Rs. 400,000.

"The revised scheme is forwarded to the government. It will be more customer-friendly and cover a large number of applicants," said K. Unnikrishnan, Deputy Chief Executive at Indian Banks Association (IBA), which recommended the modifications to student loans after reviewing the current model. At present, banks do not seek collateral on education loans up to Rs. 400,000; loans above Rs. 400,000 require joint application and collateral.

IBA has proposed that banks will now consider more than one member of the family for loans below Rs. 400,000. Currently, as a safeguard measure against defaults, most banks don't give loans to more than one member of a family. At times it would happen that the elder child would get the loan while younger ones would not get loan benefit. "This will change under the scheme as all members of a family would be considered on merit," said Mr. Unnikrishnan.

Banks are also considering extension of loan tenure to 10-15 years from 5-7 years, he said. Banks have also told the government they will inform an applicant about the estimated processing time before a loan is given. If a loan is rejected, the reason for refusal will be communicated to the applicant, who will also be given an application number and details of the authority to be approached for grievance redressal.

Concerned over burgeoning bad debt, state-run banks recorded a decline in growth of new education loan accounts in the year ended March. New accounts grew at 10%, much lower than 20-30 % growth registered in the past. Andhra Bank reported 9% decline in new-student loan accounts. However, total loan outstanding of PSU banks in FY11 increased 20% from a year earlier to Rs. 43,073 crore (Rs. 430.73 billion). "Even as we would like to expand this portfolio, NPA (non-performing assets) is a concern," said Corporation Bank Chairman & Managing Director Ramnath Pradeep.

Source: The Economic Times, August 5, 2011
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