However, the total loan amount disbursed has grown 34% to Rs 22,550 crore in FY19 from Rs 16,800 crore in FY16, indicating that banks are keen only in funding higher-sized loans.
While the total number of active loan accounts/students fell from 34 lakh to 27.8 lakh in the past four years, for the same period, the average ticket-size of loans increased from Rs 5.3 lakh to Rs 9 lakh during the same period.
“Banks are looking at a value game. They are no longer interested in volumes,” said Parijat Garg, SVP, credit bureau CRIF Highmark.
Banks, other than PSUs, have largely downed shutters for students seeking loans below Rs 4 lakh without collateral.
“Banks have gradually shifted from lending to poorer students or those they consider a risk in their ability to land a job or parents unable to put up collateral. Most private banks have a tie-up with elite educational institutions and they lend only to their students. Public sector banks have red tape, documentation and formalities before they give Rs 4 lakh loans without collateral. It’s a dismal scene for less-privileged students,” says the CEO of a private bank.
Banks said they continue to lend, but not at the earlier pace. “We meet our priority-sector lending targets, which include education loans. But the rate of defaults makes us pause — we’re using data analytics and forensics for prudent lending,” says Mrutyunjay Mahapatra, MD, Syndicate Bank.
Since most banks are public-listed entities, they say they’re answerable to shareholders and have to curtail their losses. At Corporation Bank, NPA levels in 2018 are about 11% (Rs 177 crore in NPA of Rs 1,640 crore education loan disbursed). In terms of students lent to, the default rate is higher at 17.5%. Of 50,144 students who took loans, 8,777 defaulted.
The NPA levels were 8% for Corporation Bank five years ago, and the steady increase in defaults makes it more difficult to justify lending. “We’re facing the highest defaults in the sub-Rs 4 lakh segment. Higher-ticket size loans of between Rs 7-10 lakh normally have a lower rate of default,” said V Bharathi, MD, Corporation Bank.
RBI data of 2018 shows more than 91% of education loans being given to students are by public-sector entities. Analysts say there’s good reason for less participation from private banks. “The default rate in education loans is the highest in the retail segment; home loan default rates are between 0.5-1%, for two-wheelers around 2-3% and for commercial vehicle loans 3-4%. The risk-reward for bank being small ticket-size loans (in comparison to larger SME/corporate loans) and prone to default doesn’t justify expansion in this segment,” says Alpesh Mehta, banking analyst, Motilal Oswal.
Bankers blame the economic downturn, poor job market and excessive privatisation of education for this situation. “There are hundreds of private colleges, engineering and arts churning out masses of students with mediocre or average skills in a tough job market. It is a supply-demand mismatch in the education job market. I don’t see the situation easing when it comes to education loans,” says N Kamakodi, CEO, City Union Bank.