Money & Banking
Inflicting bad education loans on banks: The FM wants to repeat his 2004-05 act

Immediately after becoming the FM once again, P Chidambaram exhorted banks to dole out more educational loans. In 2004-05 he had done exactly the same thing, leading to large losses for government-controlled banks
 

After P Chidambaram became the finance minister in August this year, one of the first things he did was to rail at banks (read public sector banks) to ensure that they dole out more educational loans. The finance minister even went as far to say that bank officers will be penalised for rejecting education loans without sufficient reasons. “Bank loan is the right of every student who meets the parameter. No bank can turn away an applicant. Every application for a bank loan must be received and acknowledged and every deserving candidate must be given the loan if the student meets the parameter,” Chidambaram had said. While he has laced his admonishment with words like “who meets the parameter”, bank chairmen know better. It was a directive from the FM.
 

Will the banks feel pressured to lend more for education? Of course they will. If so, is the finance minister pushing the government-owned banks into a hole? Exactly what he did in 2004-05?
 

Yes, directing banks to dole out more education loans was exactly what P Chidambaram had done in 2004-05—with alarming results.
 

As the FM, P Chidambaram, had announced several ‘incentives’ to boost education loans during his budget in 2004-05. In the budget speech he said:
 

* The requirement of collateral was dispensed with for loans up to Rs4 lakh.
* I am happy to say that commercial banks have now agreed to waive the need for collateral for loans up to Rs7.5 lakh, if a satisfactory guarantee is provided on behalf of the student.

* Thus, no student admitted to any professional course, including courses in IITs, IIMs and medical colleges, will be deprived of the opportunity to study because of lack of funds.

 

What was the impact? In order to please the master, PSBs went into an overdrive—bloating their portfolio of education loans. Education loans multiplied by a stupendous 10 times since FY04 and have grown at a compounded rate of 35% in the same period versus industry credit growth of 23%, according to Espirito Santo Securities, which has compiled a very perceptive report on this.
 

In the four years post the announcement of the incentives in the FY04 budget, education loans rocketed by 48%+ year-on-year. The proportion of education loans has steadily increased from 0.5% of total non-food credit to about 1.17% of total non­food credit as of FY12. Similarly, the proportion of education loans increased from 1.46% of priority sector credit to 3.59% of priority sector credit as of FY12.

When the FM orders, bank chairmen comply and then retire quietly. The bank is left with a portfolio of assets it would not want in the normal course of business. No wonder, education loans are going bad at an alarming rate. The gross non-performing assets of educational loans has swelled to 6% from 2%, in a couple of years, with a couple of banks having even reported that over 10% of their education loan portfolio is now at risk of being written off.

Amazingly, the FM is doing it again. Either he has a bad memory of his actions, or he does not know or—as is most likely—simply does not care. As long there are public sector banks which can be milked for political ends, the taxpayers and shareholders are there to pick up the tab.
 

The finance ministry, in the recent budget, had announced the formation of the education loan credit guarantee fund, which will be worth Rs5,000 crore, and where banks will be guaranteed 75% of the loan amount in case a student defaults. However, this is for loans up to Rs7.5 lakh where there is no third-party guarantee or collateral security. Evidently, Rs5,000 crore is still there is to be picked. With Pranab Mukherjee as the FM, the banks may have found ways not to lend. With Chidambaram as the FM now, they know better. As long a he is the FM, we may see a surge of education loans—a lot of which will duly go bad.
 

Tomorrow: Bad loans are especially concentrated in the southern states, mainly Tamil Nadu from where the FM hails.

 

User

COMMENTS

A BANERJEE

4 years ago

I am afraid, you seem to be rather biased against the principle of educational loans. I think, it is necessary even to more broadbase the policy so as to ensure that all academically eligible but economically handicapped students get the benefits, though tightening of the recovery policies must be well publicised and adopted. It would be better to examine each case on merits though the schools/colleges so as to rule out any scope for favouritism, bribery (to a great extent) and partiality. On the whole, it is a necessary evil.

Narain Jagirdar

4 years ago

Politicians build schools and colleges, give fancy names to them, and claim high standards of teaching, charge high fees not commensurate with the standard of teaching they provide to hapless students. As a government wedded to American ideology of commercializing everything, they want to privatize education as well, so they can wash their hands of even this basic responsibility of skilling the next generation of working people.
These very politicians have perhaps appointed PC to advocate easy loans to students from banks. Banks can go to hell!

Dayananda Kamath k

4 years ago

tragedy fo india is every good intentioned schemes are missused by the persons who matter. education loans are taken by wealthy people only. banks will also release these loans faster so that they can show the statistics. when pmry was intorduced with Rs.one lakh subsidy there was a case where it was released to a wealthy persons daughter and after claiming subsidy it was closed immedietly. 366 subsidised cylinders were given to jindals. no action even afterthe matter came in public domain. education loans will be the next problems for nationalised banks.

Sachin

4 years ago

So do you want to say that education loan should not be given ? If FM did not give directive then no bank (NO BANK) will give loans without collateral guarantee. And their are many many deserving students who cannot provide collateral and will be deprived of the education. You are pointing gun are wrong end. Problem is not with FM's directive, but students who do not repay even though they are supported by banks in need.

Also you talk about increase in loan amount, Can you also be kind enough to post the percentage increase in cost of eduction ?

Also can you give stat of farmer loan that are in NPA along with percentage increase from 2004 till date ?

Only to clarify even i do not like CHIDAMBARAM as India's FM and Congress in ruling, but request you to not make sensational stories only for sake of it.

I WOULD LOVE TO SEE EVERY INDIAN CHILD TO HAVE GOOD EDUCATION EVEN IF IT COST FEW % MORE 'NPA' TO BANK.

REPLY

Narain Jagirdar

In Reply to Sachin 4 years ago

Sachin, your spirited letter needs a dose of reality. NPAs are not banks', it is our money that banks will be playing with and a bank laden with NPAs doling out loans to students who do not repay or have no intention to repay will ultimately affect us.
Do not get carried away with exhortations of shrewd and manipulative politicians, for their vital interest is not in students but in protecting the income streams of educational institutions floated and run by their fraternal politicians who view education as a money making racket.

Sachin

In Reply to Narain Jagirdar 4 years ago

Yes Narian,
I agree with your point. Even I am not a socialist person. My point was only to show the real culprit. FM directives were to give loan to students. Now its upto each and every student who took loan to repay it timely. So real culprit for high NPA in eduction loan are students not paying back and not FM.

Regarding the education institution exhorting more money is totally different issue and that is also wrong. Everyone know that all private eduction institutions are run by politicians and these directives are to get easy money for such private institutions. We should fight against high cost of eduction but DEFINITELY WE SHOULD NOT STOP EDUCATION LOAN FOR ANY DESERVING CANDIDATE.
I have personally seen very closely how bank managers treat poor peoples when they ask for loan. For wealthy peoples bank manager themself go home to get signatures.

MOHAN

In Reply to Sachin 4 years ago

I agree with your statement "there are many many deserving students who cannot provide collateral and will be deprived of the education".

Most of the nursing students who took ed-loans could not repay it because nursing profession are underpaid in India. Hospitals and doctors are fleecing patients but nurses are paid peanuts.

PRABAL BISWAS

4 years ago

if the people who take the laons do not refund the loans they are the cheats.it does not matter who is the FM. Its very easy to point fingers

Babubhai Vaghela

4 years ago

Only about 3 Per Cent Middle Income Students are beneficiary of Education Loan in India unlike more than 70 Per Cent in US & EU Countries. Not poor but deserving. Need to Prosecute Chidambaram for Corrupt Practice.

MOHAN

4 years ago

Could you please publish the state wide percentage/details of bad educational loans?

Most of the bad ed-loans of Kerala are likely to be loans taken for pursuing nursing education.

Vodafone asked to pay Rs5,000 for starting hello tune without consent

The Consumer Forum asked Vodafone to refund money deducted from its customer's account and pay Rs5,000 as compensation for harassment and mental agony

 
New Delhi: Vodafone Essar Mobile Services Ltd has been directed by a consumer forum in Delhi to pay Rs5,000 as compensation to a subscriber for starting ‘hello’ tune service on his cell and charging him for it without his consent, reports PTI.
 
Hello (or caller) tunes are songs or music that a person hears on calling a number on which this service has been activated.
 
While also directing Vodafone to refund Rs50 it had deducted from its subscriber’s account for activating the tunes, the New Delhi District Consumer Disputes Redressal Forum observed that the telecom operator had “unnecessarily dragged him into litigation without any rhyme and reason.”
 
“Keeping the facts in view, opposite party (Vodafone) is directed to refund Rs50 (charged for activating hello tune).
 
“We also award Rs5,000 as compensation for harassment/ mental agony including litigation charges to the complainant (Rajender Yadav) as opposite party has unnecessarily dragged him into litigation without any rhyme and reason since 2008 to 2012,” the bench presided by CK Chaturvedi said.
 
In his complaint, Delhi resident Rajender Yadav had alleged unfair trade practice by Vodafone for deducting Rs50 from his account towards activating ‘hello’ tune service on his number without his consent.
 
He said he was informed about the activation through an SMS by Vodafone without seeking his prior permission.
 
Immediately after the amount was deducted, he had called up the Vodafone customer care and refused to accept the service and had also visited its customer care centres several times but the amount was not refunded, Rajender Yadav had said.
 
Vodafone in its reply to the complaint had denied the allegations against it.
 

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COMMENTS

ronald john

4 years ago

On 25th August I purchased a new Vodafone postpaid connection from Vodafone store. I used my number for just making calls and sending SMS, which I was told are free. Now they sent me, bill of Rs. 1249.25. In the bill they have charged Rs. 649 for internet surfing & downloading & they also charged Rs. 150 for activating some Special service of Vodafone which I hadn’t activated. And when I made a call at their customer service number and discussed about my bill issue they neglect that. Company had barred my outgoing calls. And after that they use to make me calls again and again that if I won’t pay the bill amount they would suspend my Incoming service also. So I submitted my complaint against Vodafone at http://www.consumercourt.in/mobile-billi.... Now I am waiting for my complaint reply. Hope I get help from Consumer Court soon.

NCDRC asks Mumbai-based developer to refund money with 18% interest

According to the National Consumer Forum, return of money after 12 years along with 18% p.a....

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