Credit crunch hits students as banks get tightfisted with loans
New Delhi: The credit crunch in the economy isn’t squeezing just companies and consumers. Students aspiring for higher studies are now feeling the pinch as banks cut back on educational loans in the face of a slowing economy and tightening job market.
Banks are applying more stringent conditions to loans, especially for students seeking admission to institutions that score low on name recognition and placement salary, students say. Firms that assist students to study abroad also complain of loans being delayed, if not denied.
“Banks, especially the nationalized ones, are taking as long as a month to process education loans. We are frequently seeing cases where students have been asked to do much more paper work than ever, and this is taking longer than usual," said Deepti Dhamija, education counsellor at Studylink, a firm that helps place students in universities abroad.
To be sure, even before the onset of the global financial turmoil, educational loans couldn’t have been easy to get for all but the best students assured of admission into the most prestigious institutions such as Indian Institutes of Technology or Indian Institutes of Management.
But anecdotal evidence shows that banks have become more tightfisted with student loans as darkening economic prospects force companies to slow hiring and affect students’ prospects of landing jobs and repaying loans.
In January, Neetu Kumari was denied a loan to pay the Rs3.8 lakh tuition fee for the MBA programme at the Delhi-based International Institute of Business Management (IIBM) by branches of the Punjab National Bank (PNB) and State Bank of India (SBI) in Agra.
Her father, who runs a stationery shop in Agra, paid Rs95,000 each for the first two semesters cost, but can’t afford to fund the remaining part of her course. The 21-year-old says she may have to drop out if she doesn’t get a loan to fund her third semester.
Though IIBM has a tie-up with PNB for educational loans, Neetu Kumari says the bank did not even accept her application, citing her low marks in her school-leaving examination, overlooking the 61% she scored in her graduation.
Surety demands
“SBI gave me the same argument and later asked for security which I couldn’t (provide),’’ Neetu Kumari said at a seminar organized by the Associated Chambers of Commerce and Industry, or Assocham, last week on educational loans in the context of the global economic crisis.
Her classmate at IIBM, Nirbhai Kumar Singh, son of a police constable in Gorakhpur, Uttar Pradesh, had to mortgage his family home with Punjab National Bank to borrow Rs3 lakh.
“There are certain mindset problems in certain branches where branch managers may be less effective or proactive in processing education loans, fearing defaulters", Anil Agarwal, a chief manager at Punjab National Bank, said.
Low marks at the school level, bank officials present at the seminar said, is no criterion for denying loans when a student’s performance improves in later stages. And Reserve Bank of India (RBI) guidelines say no sureties are required for an amount below Rs4 lakh.
Some first-year students of postgraduate management programmes at institutions such as NIILM School of Business and Delhi School of Business said they had been denied loans by banks such as Punjab National and SBI because their courses had not been recognized by the government accreditation body, the All India Council for Technical Education. This is despite the fact that PNB has tie-ups for educational loans with all the three business schools mentioned here.
Getting the money back
A Bank of Maharashtra official, who asked not to be named, explained that although RBI guidelines say educational loans should be extended only for recognized courses, most banks use their discretion by looking at placement records. “The main concern is if we are getting the money back and if the student is genuine," said this official.
Students applying to universities abroad and needing bigger loans and those seeking admission to private business schools with average placement offers (Rs3 lakh to Rs7 lakh) have been the worst hit by banks’ reluctance to lend and delays in processing loans.
“Our personal experience shows how banks are definitely taking longer than before to process loans. They...fear it might be difficult to recover costs," said Bindu Chopra, regional director (South India), at The Chopras, a company that helps students get admission to universities in the US, UK and Australia.
“For the January intake, I expect this to get bad as we have received more applications and queries. When jobs are tighter, people want to study and this is where banks come in," she says.
A questionnaire sent by Mint to prominent public sector banks such as Canara Bank, State Bank of India and Union Bank of India remained unanswered.
Students wanting to study management or medicine, where fees are relatively higher, are likely to face tough times, said V.V. Dewoolkar, dean, KJ Somaiya Medical College in Mumbai. “From my personal experience, I would certainly say that banks are playing safe...by asking for sureties even for amounts lesser than Rs4 lakh," he said.
At the Assocham seminar, an SBI branch manager, Shanti Prakash, received wide applause from other bank representatives when he suggested waiver of the collateral security clause to facilitate smooth grant of education loans. The industry body, meanwhile, is lobbying with the government to allow it to act as a guarantor for students who have no sureties to offer.
Anup Roy in Mumbai contributed to this story.
