As per the news item appearing in The Economic Times, CEOs of large commercial banks till seek the support of RBI to secure a Govt. guarantee for education loans. They plan to raise this issue on Monday when chiefs of large commercial banks are slated to meet RBI governor D Subbarao, a fortnight ahead of the monetary policy review due on April 20.
Mounting bad loans in the education loan segment is a key concern for most banks as 2-3% of total education loans have become sub-standard loans. Students availing of education loans of less than Rs 4 lakh do not have to provide any security or guarantee. Further, government-owned banks are not able to reject or withdraw education loans.
So far, state-owned banks have disbursed education loans aggregating Rs 32,000 crore to 16,98,601 students. As of now, only state governments such as Karnataka and Maharashtra are providing interest subsidy on education loans. Even as the government announced plans to provide an interest rate subsidy for weaker sections of the society, the scheme is yet to be implemented. Banks want the government to guarantee all education loans across state.
Besides education loans, banks will also seek flexibility from RBI on classification of home loans up to Rs 30 lakh as priority sector loans. As of now, only loans up to Rs 20 lakh are treated as priority sector loans. Banks say the average ticket size of the loan has risen to Rs 30 lakh as property prices have risen sharply.
Banks will also seek flexibility in treating loans to the road sector as secured loans. Since the land on which the roads are constructed belongs to the government and that it is for public utility, the land is not pledged with banks. As a result, all loans given to build roads are classified as unsecured loans. Banks have to provide a higher risk weightage on unsecured loans, making such loans expensive even though they are infrastructure loans.
Banks may also indicate to RBI to provide clarity on the base rate — the new system of pegging interest rate on loans, which will come into effect from July 1. Banks can choose to calculate the base rate, taking into account the cost of deposits and profit margin. The central bank has given banks freedom to choose deposit bracket and profit margin instead of prescribing a uniform method for all banks. Banks expect RBI to indicate a standard deposit bracket for all so that the rates are comparable.
Most banks have said they will wait for policy cues from RBI in the April policy before taking any decision on lending and deposits rates. Banks are also looking forward to the central bank’s projection on credit and deposit growth for this financial year. In 2009-10, RBI has revised its credit projection twice — from 20% to 18% and subsequently, it was lowered to 16% due to poor demand for credit.
RBI had signalled a higher interest rate by raising key policy rate on March 19 — the repo and the reverse repo rate — by 25 bps each.
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