Rising NPA in education loan propelling banks’ stress

Rising NPA in education loan propelling banks' stress
Amid the ongoing crisis caused by increasing Non-Performing Assets (NPAs) in the banking sector, default payment in education loans is adding on to this, the data released by the Indian Banks’ Association (IBA) revealed.

In the educational loans segment, the default in repayment has risen to 7.67 percent of the outstanding amount at March-end, 2017 from 5.7 percent two years ago. Further, the total outstanding education loan at end of the fiscal 2016-17 was Rs 67,678.5 crore, of which Rs 5,191.72 crore could be categorised as NPA.

The data further revealed that the NPA in the aforementioned segment compared to the percentage of total loan has been constantly increasing. In 2014-15, the figures reported were 5.7 percent in 2014-15, 7.3 percent in the following fiscal and 7.67 percent in the last financial year.

However, the government had earlier modified the IBA’s Model Education Loan Scheme to reduce the incidence of NPAs in the segment.

A key change made was the extension of repayment period to 15 years and the launch of credit guarantee fund scheme for education loan (CGFEL) for up to 7.5 lakh Rupees. As per the IBA data, state-owned Indian Bank accounted for the maximum education sector bad loan, amounting to Rs 671.37 crore as on March 2017, followed by the State Bank of India (SBI) (Rs 538.17 crore) and Punjab National Bank (Rs 478.03 crores).

In a bid to reduce the stress on the financial sector due to rising NPA, the government had, in October, announced an unprecedented PSU banks recapitalisation program of Rs. 2.11 lakh crore, out of which Rs. 1.35 lakh crore will come from recap bonds, and rest from markets and budgetary support.

“To improve the lending capacity of the banks, we have announced the recapitalisation programme, which is essential to increase public spending on infrastructure, and that expenditure on infrastructure,” Finance Minister Arun Jaitley said at a press conference in the national capital.

Adding to this, he said there is a need to increase public investment, for which, bold steps will be taken by the government to recapitalise banks in the country.