With non-performing assets (NPAs) in the educational loan portfolio rising, banks are putting in place mechanisms to check delinquencies and also keep track of students.
“We need to assess the repayment capacity of the borrower, which comprises two components — of the parent and of the student himself after he gets employed, which depends upon the course he has selected, the employment potential of the course and the track record of the institution as far as placement is concerned,” Mr H.S. Upendra Kamath, Executive Director, Canara Bank, told.
The educational loan portfolio stood at Rs 2,976 crore as on June 30, covering 1.71 lakh students. The NPAs in this portfolio are Rs 117 crore, or 3.93 per cent. This portfolio recorded a 29-per-cent growth during the last fiscal from Rs 2,281 crore as on March 31, 2009, to Rs 2,947 crore as on March 31, 2010. Significantly, NPAs in this portfolio have increased about 85 per cent from Rs 61.33 crore to Rs 113.61 crore during this period .
“These factors will hereafter play a major role in sanctioning educational loans, particularly loans up to Rs 4 lakh where there is no security involved,” he said.
Economic factors
The NPAs in the up to Rs 4 lakh category of educational loans stood at 5.5 per cent as on March 31, 2010. NPAs are increasing partly because of the economic conditions in the past two years, he reasoned, adding that things were improving now. “Going forward, we hope that recovery in educational loans will also improve,” said Mr Kamath.
Keeping track of students who keep moving is a big challenge today for the banking fraternity, said Ms Shubhalakshmi Panse, Executive Director, Vijaya Bank. The bank's educational loan portfolio stood at Rs 562 crore as on July 31, 2010, and the NPAs stood at Rs 20 crore or 3.5 per cent. The bank adds about Rs 40 crore every quarter in this quarter, recording a year-on-year growth of about 20 per cent.
Canara Bank has intensified its monitoring mechanism, since “not all overdues arise from genuine problems,” he added. “Current whereabouts of students are to be ascertained with help from colleges and parents”; and wherever these efforts do not yield results, appropriate action would be taken, he pointed out. He added that assistance of colleges will be sought both for tracking the student during the course and also employment details post completion of the course.
According to Ms Panse, the fraternity was discussing at the Indian Banks' Association level to arrive at a fool-proof method to tackle this challenge. She hoped that the government's unique ID project would help banks keep track of educational loan borrowers, and banks would also approach the Credit Information Bureau India Ltd to update information on such delinquencies, so that future credit to these defaulters could be stopped.
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