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Feb 18th
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Home Legal India Ministry to Banks: Reform required in education loan norms

Ministry to Banks: Reform required in education loan norms

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Finance Minister, P Chidambaram, in a move to make finance available to students have asked banks to reform the lending norms to accommodate so-called management quota students, and stop seeking margins for such loans.
The students who are enrolled under management quota are provided special seats which are reserved by the institutions and decision on allotting these seats lies with the management. Typically, the fee for such seats are higher than what other students who get admission based on merit pay. Most state-run banks have been going slow in giving education loans fearing a pile up of bad loans. Outstanding education loans in the banking system till mid-June was Rs.50,730 crore, up from Rs.44,490 crore a year ago. According to the senior bankers, around 5% of such loans are non-performing assets (NPAs).
As for management quota students, bankers said the chances of them performing well and getting jobs to repay their loans are far less than the students who secure admission through merit.
Chidambaram has also asked banks to start giving loans to students in nursing colleges and make sure they are not denied the full amount. Banks are not forthcoming in giving loans to nursing students as NPAs in this segment are relatively high.
Typically, banks ask for a 5-15% margin for education loans, depending on the quantum of loans.
At present, banks do not seek security for education loans of up to Rs 4 lakh. But IBA norms require that a third-party collateral for loans between Rs 4 lakh and Rs 7.5 lakh. For loans of over Rs 7.5 lakh, along with a joint obligation from parents and assignment of future income of the student, a suitable collateral is also required. The collateral can be in the form of land, building, government or public sector bonds, life insurance policies, bank deposits, mutual funds or even gold.
“The IBA will review current deficiencies such as our pro-activeness in providing appropriate credit, perhaps without insisting on collateral on loans up to Rs 7.5 lakh. The IBA will review these issues and come out with a new circular,” said MD Mallya, chairman and managing director, Bank of Baroda.



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