New
Delhi: The
government will soon set up a fund that will provide surety to banks against
loans given to students for higher education.
Called the higher
education credit guarantee fund, it is likely to improve the credit flow to
needy and meritorious students.
The fund will have a
corpus of Rs.3,500
crore but will start operations with Rs.500 crore in this fiscal year. A notification to this
effect shall be made next month, said two government officials who did not want
to be named.
“There is a lot of
delay in setting up of the fund but finally it’s going to be established in
next few weeks. The human resource development (HRD) and the finance ministry’s
have finished the homework,” the first government official said.
Both ministries
believe that education loans, a priority sector, have been a sticky point for
both banks and students. While students complain of reluctant banks, banks talk
about the risky nature of such loans. The credit guarantee fund is expected to
take care of the banks’ concern.
“It will guarantee up
to 75% of the education loan amount. Successive finance ministers have spoken
about handholding this sector and credit guarantee to banks will improve the
confidence of banks and help needy and meritorious students get loans,” the
official said, adding that less than 10% of students pursuing higher education
have availed of study loans.
The fund will provide
guarantees to unsecured education loans of up to Rs.7,50,000.
Banks will deposit 1% of every student loan amount in this fund.
The first official said
that after the moratorium period—one year after the end of studies or six
months after getting a job, whichever is earlier—banks may have to give 15-18
months to the student borrower.
If, after this
lock-in period, the student does not start repayment, then 50% of the credit
amount will be given at one go to the bank. The remaining 25% will be paid
after a certain period of time, during which the concerned bank may initiate
legal action against the borrower.
As of February 2015,
banks had a total outstanding of Rs.59,256 crore as education loans, compared to Rs.57,129
crore a year ago, according to data with the Reserve Bank of India. The first
official cited earlier said the loan portfolio growth is not very encouraging.
The official said the
HRD ministry will be the key driver of the fund. Earlier, the finance ministry
had contended that such funds should be administered by it since bank loans are
tied up with the scheme. The plan to start such a fund was first mooted in 2012
by then finance minister Pranab Mukherjee.
“We have told the HRD
ministry that they should take over the education fund since they understand
the requirements of students better,” said a finance ministry official, who did
not wish to be identified.
K. Srinivasan,
convenor of the Educational Loan Task Force, a Chennai-based organization
working in the field of education loans, said the study loan portfolio
currently is too small and it can easily double if banks become supportive.
He said that only
around 2.6 million students have opted for student loan and that
this number can go up if the credit guarantee fund is set up soon. India has
around 30 million students in higher educational institutions.
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