Private sector banks, which have recently come under the scanner for corrupt activities, have little concern for promoting education and literacy in the country by providing education loans. A large part of lending to the education sector in the country has been done by public sector banks. A recent RBI report disclosed that the share of Public Sector Banks (PSBs) in lending to the education sector is 91.42 per cent.
Data on education loans also reveals a divide between southern states and the rest of the country. It shows that students in southern states (Tamil Nadu, Kerala, Karnataka, Andhra Pradesh) pursue their studies by taking education loans more than students in the rest of the country.
Banks disburse education loans under the Model Education Loan Scheme of Indian Banks’ Association (IBA). Under the scheme, interest is charged from the first year, but the interest is payable only after the moratorium period (which is the course period plus one year). However, the Government is implementing the interest subsidy schemes on education loans for higher education under Central Sector Interest Subsidy Scheme (CSIS).
The RBI data on education loans shows that about Rs 12,595 crore were disbursed on 684,836 loan accounts in the year 2015-16. However, the numbers came down in the year 2016-17, when Rs 11,175 crore were disbursed on 599,729 accounts. The subsequent year, 2017-18, witnessed a rise in the numbers, as Rs 13,470 crore were disbursed on 786,312 loan accounts.
Tamil Nadu had the maximum number of education loan accounts at 152,608 under which Rs 1,659 crore was disbursed to students. Karnataka, Kerala and Andhra Pradesh also saw a large number of students getting education loans in the year 2017-18. While Karnataka has 90,630 loan accounts disbursing Rs 1,655 crore, Kerala saw disbursal of Rs 1,169 crore to 99,314 loan accounts.
On the contrary, larger states such as Uttar Pradesh, Bihar, Madhya Pradesh, Rajasthan and others have seen fewer students applying for education loans. In Bihar, 39,284 students got Rs 412 crore in education loans in the year 2017-18. In Madhya Pradesh, 30,759 students got Rs 479 crore, while in Uttar Pradesh, 30,402 students got Rs 542 crore.
Interest charged by the PSBs on education loans ranges from 8.60 per cent to 11.50 per cent per annum, depending on the Marginal Cost of Lending Rate of the respective bank and the size of the loan.
The government has advised banks to adopt a non-coercive differentiated strategy in so far as recovery of education loans is concerned. The NPAs on account of education loans in March 2018 stood at `6,434.32 crore, which is about 8.97 per cent of the total NPAs of the banks.