Saturday, June 30, 2012

Banks going slow in granting education loans

There is considerable delay in processing and sanctioning of educational loans by banks, according to feedback received by Indian Banks’ Association (IBA). The delay affects students from the rural areas more than their urban counterparts, reveals the feedback, which was obtained by the apex banking association through six interactive sessions with over 150 reputed educational institutions.

No awareness
Even for loans up to Rs. 400,00, banks insist on collateral and there were cases of rejection of applications on this account. There were some complaints that banks were charging monthly compounded interest on education loans and were insisting on insurance cover, which is not mandatory. According to the IBA, some of the representatives from the institutions have pointed out that frontline staff in banks lack awareness about loan schemes.
Banks were not using any common criteria. For instance, while some banks consider giving loans to students wishing to pursue a one-year post-graduate course in hospitality, some take the stand that such courses are outside the scheme. There were cases where banks stopped loan disbursements in subsequent years when the student failed in one or two subjects but were still attending college.

Loan recovery
The progress reports might not be ready when students have to pay fees for the new year/term and refusal by the bank to release instalments would cause inconvenience to students and educational institutions, the report states. To improve the situation, institutions express willingness to assist in loan recovery to the extent possible by helping trace students and to share their academic progress with banks. “Some even offered online access to academic records. And some colleges were willing to sign MoUs with banks,” the IBA said.

The feedback also shows that the system of fixing uniform EMIs throughout the loan recovery period was not always appropriate. Flexibility might be brought in by progressively stepping up instalments, starting with a relatively smaller amounts.

Source: The Hindu Business Line, June 30, 2012

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