Education loans add to banks’ stress

Education loans, too, have started bleeding the banking sector, with the default in repayment rising to 7.67 per cent of the outstanding amount at Marchend, 2017, from 5.7 per cent two years ago.

According to the data compiled by the Indian Banks’ Association (IBA), the total outstanding education loan at end of the FY17 was ~67,678 crore, of which ~5,191.7 crore was non-performing asset (NPAs).

The government is already struggling to deal with the problem of mounting NPAs in public sector banks and has drawn a mega recapitalisation plan to strengthen them. IBA data revealed that the NPA in the segment in percentage of the total loan has been constantly increasing.

The NPA was 5.7 per cent in 2014-15, which rose to 7.3 per cent the following fiscal year and further to 7.67 per cent in the past fiscal year.

The government had earlier modified the IBA’s Model Education Loan Scheme with a view to reduce the incidence of NPAs in the segment.

The changes made in the scheme include 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. CGFEL provides guarantee to the extent of 75 per cent of the defaulted loan.

According to the IBA data, state-owned Indian Bank accounted for the maximum education sector bad loan, amounting to ~671.37 crore as of March 2017.