The NPA levels of the education loans in India is bound to increase in the coming few years. The crisil research expects the NPA levels to reach to 6-7 % by 2015-16 from the present levels of 4%. This is a serious situation especially for the public sector banks of the India as they provide almost 90% of all the education loans taken by students.
Loan distribution profile
Almost 85 % of the loans are given for higher education, 10% graduation courses and 5% for other courses.
Demand of education loans
India has the highest number of education institutions in the world. Still only 3% of Indian students avail the facility of education loan against the UK (85%), US (77%), German (70%) and France (70%). It is expected that education loans will grow at the CAGR of 20% from 2011-2015 as compared to 40% in 2004-10. The reason for slow growth can be attributed to 2 factors:
1. Larger base effect
2. Rising NPA levels in education loans
Reasons for high NPA
1. The main reason for such high level of NPA is the rule of no guarantee or collateral for loans under Rs. 4 Lakhs. Almost 80% of loan defaults come from this category.
2. Lack of the ability to correctly predict the salaries that students will be getting after completing their studies.
3. False promises by many private institutes about the average expected salary that one can get from their college placement cells.
4. Students who had taken loans in the period of recession 2008-9 may be finding difficult to may back the loans due to lack of job security or other reasons.
Mandatory collateral: The banks should be allowed to have collateral even for loans below Rs 4 lakhs. This will really help the banks to reduce their NPA levels. It will also help to motivate the private sector banks to enter into this segment.
Grading of colleges: The colleges should be graded with respect to the efficiency and repayment track record of the students of that college.
Increase in the repayment period: This will be a relief to students who currently have low salaries and cannot pay big amounts.