Increase education loan lending: Nair Committee recommendations
Moneylife Digital Team 23 February 2012

Banks are concerned as non-performing assets in education loans are as high as 6%. Meanwhile, SBI, largest public sector lender, announced an interest rates cut on education loans up to 1% 

The committee constituted by the Reserve Bank of India (RBI) to re-examine the existing classification and suggest revised guidelines for the lending to the priority sector, has recommended an increase in lending limit for education loan by Rs5 lakh. 

The committee headed by MV Nair, chairman, Union Bank of India, in a report suggested to that limit under priority sector for loans for studies in India may be increased to Rs15 lakh and Rs25 lakh in case of studies abroad, from existing limit of Rs10 lakh and Rs20 lakh, respectively.

The RBI has sought comments on the report of the Committee. 

Redefining the scope of education loans by removing the limits and fixing it on the basis of parents’ income, covering vocational and skill development under its ambit and establishing a credit fund to cover the risk of defaults were some of the suggestions received by the committee. 

There is no suggestion on the lending up to Rs4 lakh, given without any security or collateral. Experts say that this category also has highest number of repayment defaults. 

Non-performing assets (NPAs) in education loans are as high as 6%. To bring down NPAs in education loans, the government is considering the option of setting up a credit guarantee trust.

Last year, the Indian Banks’ Association (IBA), which has formulated the model education loan policy, had recommended of creating a credit guarantee fund to tackle the problem of rising defaults in the loan category of up to Rs4 lakh. The committee has said that it is under consideration. 

Recently, IBA asked lenders to impose stricter terms on loans given to students getting admission under the management quota. “Any loan considered by banks for students getting admission under the management quota would be outside the model scheme. Banks may fix appropriate terms and conditions for such loans,” IBA said in a guidance note.

Experts, say that there is need to address the issue of lending to students under management quota as it might impact large number of students opting admission through this route. 

According to Prashant Bhonsale, country head of Credila Financial Services, a private lender specializing in education loans, “Though the move is in the right direction considering the risk factors from the point of view of the lender, there is a need for risk-management framework for lending to these average students.” 

An official of Mumbai-based public sector bank, which has seen 16%-17% growth in the education loan portfolio, confirmed that, “It is left to each bank to decide on the lending to students under the management quota. It won’t come under the IBA policy. We are looking into it. I cannot commit anything right now.” 

According to the current guidelines, banks lend up to Rs4 lakh without any security. But for loans between Rs4 lakh and Rs7.5 lakh, they can ask for personal guarantees, and for a loan above Rs7.5 lakh, a collateral is required.

After the apex bank eased its monetary policy, State Bank of India, largest public sector lender, announced an interest rates cut on education loans up to 1%.


Ashok Singhvi
1 decade ago
The govt policy is to free education at school level and further adancing towards instilling
higher education / technical education which MHRd is very low in India as compared to other nations, to provide loan even with higer interest 14.75 % to poorest of poor limit Rs 4 lac highly condemnable.
Most of the loan during past 5 years goes to unworthy education institution in the name of student loan. Almost 2-3 Lac student were in trap thru either with tie up between bank and unworthy education institution.This tie up thru agreement or passing recommendation for providing loan.

In the name of advancement of higher and technology develoment both the giver ( loan provider) and the receiver the unworthy education
institution(derecognised) looted on behalf of poor following manner.

1 Providing Education Loan on Higher Interest as much as Five-Times as compared to other nation and Accruing Interest Income.

2 By showing higher earning the Higher -Ups make their own development thru officially and thru un officailly or may it be scam.

3 Make a Credibility before Indian Govt and Public that they are contributing to social cause and their social responsiblities are full- filled perfectly

4 And get a perfect way of explaining the reason of NPA is for social cause- education loan sector. .

Educational Institution.
1 Since the fund is being easily arranged/ managedthru Bank by the victimised student they are charging higher rate and now and then get escatlation.
2 They are multiplying their business without hindrance -adminitrative supervision of Goverment .
3 Since they have tie-up directly with bank they make easily prey to stundent to remain in same university/or institution to continue the course or advance the course whether they are imparting the higher education properly or lhaving all equipment , laboratory, best faculty etc
4 Easily Accessible Fund.
They earned a lot and easily pay handsome amount to the loan arranger and get Easy Access to the Fund of public.

1 The loan so called assistance is ultimately is payable by student himself .Not only loan but a accrued higher interest( year after year compounding).
2 Immediate Fund arrangement put the loan aspirant (yet poor and unmature) in prey on the terms and condition whatever both the bank and the institution laid down thru TIE-UP or Recommedation of Bank .Even the bank and the institution not bother to explain the after effcet or consequenses of the terms .As the aspiriant-the student at that time his main aim is to get admission before closing date., simply or say blankly sign the agrrement.He does not think of how alarming fees and interest is being charged, or the institution is good or bad , faculty is good or bad.

3 Consequenses of Derecognisation
The aspirant-student who took admission thru Bank tie-up or Bank Recommedation , afterwards became derecognised or disqualified or ranked down ; what would happen to him and his parent is out of imagination. The situation would be grave and may cause unhappening.
-His drive for advancing higher education / technical education struck down.
-His employment opportunity for that period lost
- He is socially degraded
- His career blocked
- He has to re- pay the Loan and the Accrued Interest which he took at on higher rate in the wake of getting employable and marching towards good career even after on recommendation of bank or tie- up.arrangement for that institution.
-Or else has to be defaulter if repayment not starts .
- And he will be reported to CIBIL
- And thus no where
What a pity situation .


A Sri Yash Pal Kapoor took initiative to take all fraud uinversities to court and the supreme court derecognised on special writ petition by Rai University

B Govt derecongnised 44 universities
If one go by govt's afterwards action
we find that everyone is aggravated by
the govt statement the it is taking all step to resettlement. But yet no one is settled . Even goverment did not take care of settling their Loan .

At least goverenment should come forward and get their Loan waived Off and resettle progamme thru confirmed study package with assured job opportunity or study simultaneously with job be launched
Nagesh Kini FCA
1 decade ago
The education loans at some point in time may appear to be NPAs on account non-repayments because of the job market slow down. They definitely will no go bad, only a temporary deferral in repayment.
The commercial bankers and the RBI are unduly concerned about smaller education which individually don't exceed Rs.20 lakhs.
Additional money is pumped in or advances 'restructured' by writing off interests for dues from big guns. Kingfisher Airlines is a case where some banks consider NPA and some not!
RBI may well advise not to harass the deserving students and their parents and guarantors, instead come out with a deferral going by the now internationally accepted term 'bailout'!
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