By
Nantoo Banerjee
The
shrinking job market is becoming an increasing concern for the country’s
millions of students studying at home and abroad with education loans. Also
concerned are those unemployed youth who had finished education with the
support of bank loans that they are unable to return. The equally concerned are
the guardians of the students, offering collateral for such loans. Banks are
facing huge loan defaults. Interestingly, most of the education loans come from
state-owned banks. The collateral is something pledged as security for
repayment of loan, to be forfeited in the event of a default. Banks are
increasingly finding it difficult to recover education loans from defaulters,
genuine or wilful.
Currently,
the picture of India’s job market looks pretty gloomy, especially in the
context of the new trend of a complete makeover of technology and business
model under a booming startup environment. The latter seems to be destroying
almost every existing business models. New technologies like the cloud,
analytics, artificial intelligence (AI), automation, the internet of things
(IoT) and startup environment are bringing about a cascading effect on almost
every industry, affecting the job market drastically. Education loan takers and
givers seem to have caught in a trap under the new environment.
Priority-sector
education loan is as politically sensitive as farm loans and MSME sector loans.
Banks are often known to under-report bad education loans ever since the
government relaxed the repayment terms. Therefore, the government’s statement
in the last Lok Sabha session on the subject may not have provided the true
picture as it skipped the shrinking job market part as a key reason.
According
to the Indian Banks’ Association (IBA), state-controlled banks have seen a
steep rise in defaults on education loans in the last two fiscal years. The
non-performing assets (NPAs) or bad loans in the education sector climbed to
8.97 percent at the end of March 2018 from 7.29 percent at the end of March
2016. As much as 94.68 per cent of the total outstanding education loans are
accounted by public sector banks which are now looking at selling delinquent
loans to asset restructuring companies (ARCs). Interestingly, the government
stats covered the period only till the end of March 2015. It told Lok Sabha
that 5.7 percent of education loans given out by state-owned banks had not been
repaid by then. And, going by subjects, those pursuing nursing formed the
largest category that was unable to repay loans—constituting 21.28 percent of
the sector’s total bad loan portfolio of banks. Loans disbursed towards nursing
courses in 2017-18 stood at Rs 2,263 crore, compared with Rs 1,154 crore in the
previous fiscal.
Loans
taken for engineering courses formed the third largest defaulting category,
accounting for 9.76 percent of the total bad loan portfolio till March 2018.
The amount may look insignificant if compared with the combined bad loans
slammed on state-owned banks by some 30-odd big businessmen and their
enterprises, running into several lakhs of rupees. However, defaulted education
loan — meant for job seekers — can’t be compared with stricken industrial
loans. Rising defaults have forced banks to go slow in disbursing education
loans, threatening negative impact on both students seeking higher studies and
educational institutions.
According
to RBI reports, banks have reported a flat growth of 0.02 per cent, or just Rs
21 crore, at Rs 72,839 crore in outstanding education loan growth for the year
ended March 2018 as against Rs 72,818 crore in March 2017. The banks’ education
loan portfolio increased by 6.87 per cent from Rs 68,133 crore in the previous
year ended March 2017 and by 9.46 per cent in March 2016. The highest growth
was witnessed in 2013-14. It rose by nearly 24 percent, from Rs 11,452 crore to
Rs 59,834 crore. The gross education loans amounted to Rs. 48,382 crore in
2012-13. And, bank’s NPAs on account of education loans were around Rs. 2,615
crore. There is no security and margin requirement for education loans up to Rs
4 lakh. For loans ranging from Rs 4 lakh to Rs 7.5 lakh, banks seek third party
guarantee. And, for loans above Rs 7.5 lakh, tangible collateral security of
suitable value, along with the assignment of the future income of the student
for payment of instalments, are required to be furnished by the borrower.
Defaults
are high in cases where repayments are supposed to be done by students. Their
ability to return education loans are linked with their ability to find a job
after they finish their education. A report by rating agency CARE points out
that “there could also be a pattern of student’s delinquencies vis-à-vis level
of higher education. The delinquencies are likely to be higher in undergraduate
courses vis-à-vis post graduate courses as employment opportunities (rate of
returns/future earnings) are commensurate with the financial costs on account
of lower competition in those segments.”
The
impact of education loan default may fall, sooner or later, on the education
industry. Weak job market conditions
have become the bane of job-seekers after completing their higher education.
Fortunately, the education loan repayment period has been extended from five to
15 years. The possibility of borrowers undergoing periods of unemployment
between employment because of weak market conditions has been factored in. The
borrowers may not find employment with enough salary to pay the entire EMI
amount initially. Therefore, they have been provided the opportunity to start
repayment in smaller amounts. The revised regulations are trying to ease the
pressure on both the lenders and the borrowers. However, education loans are
not sustainable without the support of the job market. The emergence of new
technologies and new business models threaten to further shrink the job market
growth. That is a big worry. The job market squeeze has pushed up education
loan defaults 30 percent in Uttar Pradesh alone. (IPA Service)
The post Shrinking Jobs Are Bad News For Education Loan appeared first on Newspack by India Press Agency.
