Out of total education loans disbursed, 366,260 accounts worth ₹8,587 crore have turned bad, govt said
Nearly 9.55% of education loans extended by public sector banks were categorized as non-performing assets (NPAs) as on 31 December, the Union government informed Parliament on Monday.
Out of the total education loans outstanding, 366,260 accounts worth ₹8,587 crore have turned bad, it said.
Experts said job and income loss and drop-out rates following the covid outbreak, were key factors behind the surge in NPAs for this loan category.
The rate of NPAs for education loans was significantly higher than in 2019-20 and is the highest in the last three financial years. NPAs for education loans stood at 7.61% in FY20, 8.29% in FY19, and 8.11% in the year ended 31 March 2018, according to finance ministry data. The category also witnessed significantly higher NPAs than housing, vehicle, consumer durable and retail loans, which were between 1.52% and 6.91% in financial year 2019-20.
Loans extended for engineering courses led the list of NPAs in the education sector with 176,256 accounts amounting to ₹4,041.68 crore turning bad as on 31 December 2020.
“There is a combination of factors that must have contributed to this surge. Financial crisis because of jobs and income loss is a key factor. Besides, repayment of such loans, especially during an economic downturn, is not a priority for people because they are largely unsecured loans. A banker cannot take away an asset in the case of an education loan because in most cases there is no mortgage, unlike, say, a housing loan," said Narayanan Ramaswamy, partner and head, education practice, of consulting and auditing firm KPMG.
“In an income loss and job loss situation, education loan repayments have taken a back seat against survival. Besides, students have gone for a deferment of their education and many must have dropped out from courses such as engineering, contributing to the surge in non-performing assets," said K.R. Shyam Sundar, a labour economist and academician.
Instances of students dropping out of professional degree courses following disruptions in the market, the jobs sector, and the education sector caused by the covid-19 pandemic, must have contributed to the rising instances of bad loans for the category, Ramaswamy said.
States facing high levels of loss of income and jobs and with a high density of engineering colleges must have contributed to high NPAs, he said.
South India contributed over 65% of the total NPAs for education loans, with Tamil Nadu alone registering NPAs of ₹3,490.75 crore out of the total of ₹8,587 crore education loan NPAs till December-end, government data showed. Of the state-specific outstanding education loans, 20.3% in Tamil Nadu and 25.76% in Bihar have turned bad. However, Bihar’s burden was much less than Tamil Nadu.
The central government had offered a moratorium on loan repayments to borrowers, including those who had taken education loans in the first half of 2020.
“This was a good move from the government, but by the end of the period jobs loss in the formal sector had become evident and this must have pushed deferment of education loan payment by many and more so those who dropped out," Shyam Sundar said.