Public-sector banks (PSBs) ended FY17 with bad loan ratios in the education loans category as high as 18% in some cases, data released by the ministry of finance showed. Going by the data in the documents placed by the ministry in the Lok Sabha and numbers put out by PSBs in their annual reports and/or investor presentations, seven PSBs had a double-digit gross NPA ratio as a share of their education loan portfolio, as on March 31, 2017. At 18.43%, Chennai-based Indian Bank had the poorest NPA ratio among PSBs, followed by Central Bank of India (16.64%) and Bank of Baroda (16.13%). The average NPA ratio of 18 PSBs was 8.89% at the end of FY17. This figure does not account for the NPA ratios of State Bank of India (SBI) and its associates, IDBI Bank and UCO Bank. Their ratios could not be ascertained as the value of their education loan portfolios was not readily available. In absolute terms, SBI and associates saw NPAs worth Rs 891.94 crore in education loans, while the numbers for UCO Bank and IDBI Bank were Rs 346.71 crore and Rs 35.58 crore, respectively. Analysts have earlier flagged the worsening of asset quality in the education loans space. In August 2017, credit rating agency TransUnion CIBIL wrote that small-ticket education loans were seeing high levels of delinquency.
“Loans below Rs 4 lakh given to borrowers of the sub-21 years age-group showed a two to three times higher default rate than the least risky basket,” the agency had said in the report. It indicated that there was a strong likelihood that this was caused by few jobs being created for students emerging from category II and III institutions. A spokesperson for TransUnion CIBIL said, “Our findings indicate that while there is growth in amount of education loans disbursed, the quality of education loan portfolios needs to be monitored closely as over 3.5 lakh of these 28 lakh accounts are NPAs (Non-Performing Assets) amounting to Rs 7,000 crore. Our study finds that in this segment as well a joint loan or a loan guaranteed by a credible guarantor reduces delinquency level significantly. As such, steady underwriting practices will ensure profitable loan growth in this very important education loan segment”.
Of the 10 PSBs with the poorest bad loan ratios, four are based in southern India. While PSBs have a relatively higher exposure to education loans, private banks may also be seeing defaults rising. Earlier this month, Kerala-based Federal Bank reported a Rs 71-crore slippage in its education loan book during the quarter ended December. Shyam Srinivasan, managing director and chief executive officer at the bank, attributed the slippage to a dispensation given to some borrowers by the Kerala government. “In the beginning of July of 2017, the state government came out with some kind of a concession, so to say, which encouraged even bonafide people who are serving their dues to look for some subsidy,” Srinivasan told analysts, adding, “therefore, everybody is now tempted to go out and see if they can get the state government subsidy, and therefore, they have stopped (repayments). Even those who were paying are not paying now.”
In its submission to the Lok Sabha, the government said that it has modified the IBA (Indian Banks’ Association) Model Education Loan Scheme to reduce the incidence of delinquencies in education loans. Shiv Pratap Shukla, minister of state for finance, said in a written response to a question, “The changes, inter-alia, include repayment holiday/ moratorium of course period plus one year, additional periods of moratorium taking into account spells of under-employment/unemployment, during the life cycle of the loan, extension of repayment period to 15 years to reduce equated monthly installment (EMI), etc.” Shukla added that the government has also launched a Credit Guarantee Fund Scheme for Education Loans (CGFEL) for loans of up to Rs 7.5 lakh, which provides guarantee to the extent of 75% of the defaulted amount.