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In Context
- Recently, the data on Non-Performing Assets (NPAs) in education loans of Public Sector Banks (PSBs) was obtained through the Right to Information Act.
The data highlights
- Loans for premier institutes vs secondary institutes:
- The data shows that the default rate is much lower for loans disbursed to students in premier institutes as compared to those in secondary institutes.
- About 239 institutes like the IITs, IIMs, NITs and AIIMS are categorised as premier institutes by banks.
- The data shows that the default rate is much lower for loans disbursed to students in premier institutes as compared to those in secondary institutes.
- Low-value education loans:
- Low-value education loans (up to Rs 7.5 lakh) constitute a bulk of the defaults in the education loan portfolio of bank.
- Bank specific data:
- According to the data, 4.7 percent of the total education loans disbursed by the State Bank of India, Canara Bank, Union Bank of India and Indian Overseas Bank have turned into NPAs.
- These four banks together constitute about 65 per cent of the total loan portfolio of PSBs.
- PSBs:
- Overall, about 8 percent of all education loans disbursed by 12 PSBs, where repayments have started, have turned into NPAs.
- Lenders in the market:
- PSBs are the largest lender in the education loan sector and have a market share of about 91 percent.
- RRBs (regional rural banks) and private banks constitute the remaining 9 percent of the market.
More about the education loans
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Issues & Challenges
- Potential Impact on students in secondary institutes:
- Following the high rate of defaults in low-value education loans of PSBs, banks have slowed such lending, impacting students enrolled in secondary institutes across the country.
- Low-value loans:
- High defaults are being reported in low-value loans (up to Rs 7 lakh).
- Defaults in the lower band education loans are becoming a concern for banks, which may not be looking to expand their loan portfolio by providing credit to low-value loans.
- Major cause of defaults:
- Defaults in the low-end segment may have aggravated post-Covid.
- The issue of joblessness among students passing out of medium-level institutes have aggravated post-Covid, leading to such a situation.
About Non-Performing Asset (NPA)
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Source: IE
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