BANKS TAKE A TOUGH COURSE ON EDUCATION LOANS

If you are planning to take an education loan, be prepared for some tough questions and stringent norms from your banker.

Worried by a ‘noticeable increase' in non-performing assets (NPAs) under the portfolio, banks are now insisting on asset mortgage and third-party guarantee, among others.

“In addition, I have also been advised to start payment of interest in the moratorium period itself when I approached State Bank of Hyderabad for a Rs 5-lakh loan for my son's engineering education,” Mr P. Varaprasad, an Andhra Pradesh Government employee, told Business Line.

Payment of interest in the moratorium period (when the ward is studying) is now being ‘advised' as it would reduce the burden of repayment on the parent/co-applicant later.

The reason for ‘extra caution' is slippages in repayments of loans that were issued earlier.

“While education loans are a priority area for us, it is a fact that NPAs under this portfolio are increasing,” Mr M. V. Nair, Chairman and Managing Director, Union Bank of India, told Business Line.

“I think, the difficulty faced by those who had finished their courses during 2008-09 in getting jobs could be one of the reasons apart from the general economic conditions prevailing,” he said.

More important, the irregularities and false promises made by some universities abroad were also resulting in poor quality of education and non-completion of courses, among others, he added.

Dr K. Ramakrishnan, Chief Executive, Indian Banks' Association (IBA), said the perceived increase in NPAs in education-loan portfolio could be part of an overall increase in slippages in the banking industry.

Possibly, the NPAs could have come from the sub-Rs 4-lakh loans where no mortgage/third party guarantee was required, he said.

“My own feeling is that there will be no wilful defaulters in education loans. As parents are involved as co-obligants, there is an emotional angle to repayments. The banking industry has huge faith in our youth,” he added. Banks are open to extending repayment periods in deserving cases.

“At IBA, we will also study the issue of NPAs in education loans,” he said.

When contacted, a senior official of State Bank of India said: “I cannot comment on the quantum of increase in NPAs. But this is an issue of concern.”

As the purpose of education loans was not fully commercial, there would be no difficulty for those who want loans for genuine studies, he added

SOURCE; http://www.thehindubusinessline.com/industry-and-economy/banking/article2115899.ece