The students too are not spared by the credit crunch facing the economy. Students depending on education loan to pursue their higher education may be facing a depressing phase as banks are going slow on education loan disbursements.
Bankers say that they are facing increasing defaults on education loans that are considered to be priority sector loans. Study loans up to Rs 4 lakh are extended without taking any collateral. Although government has been commanding public sector banks to enhance lending but there is no effect that can be noticed among these banks which are reducing their loan disbursement.
In fact a manager at an Indian Overseas Bank (IOB) branch in Chennai also attributed the fall in banks' education loan portfolio to the increasing defaults in the segment. He informed that nearly 25% of the NPAs (non-performing assets) of his branch are educational loans. "There is going to be a sub-prime even in educational loans," he added.
The finance ministry has directed nationalized banks to provide loans to students who deserve and are merit holders. Normally bank lend to meritorious students and in cases where the course as well as the institution offering the course is approved by respective agencies but presently they claim that they are not in a state to extend education loans.
Besides banks are also following more stringent guidelines on loans demanded by students seeking admission to institutions that score low on name recognition and placement salary, students say. "We ascertain if the student in question is capable of finishing the course and getting employed. Only then do we disburse the loan," says a senior manager from IOB.
Not only education loans, banks are becoming cautious in their retail lending. "We are giving retail loans to those people who have a salary account with IOB. We are basically interested in timely repayment. Sometimes, we also look at past records of the customer before finalizing the loan," added the IOB official.
Above students applying to international universities and calling for huge amount of loans and those seeking admission to private business schools have been worst hit by banks' unwillingness to lend and hindrances caused in processing the loans.