RBI raises concern over rising defaults in education loan

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eduction-loanThe rising defaults in the education loans have raised an alarm for Reserve Bank of India Governor Raghuram Rajan.

Speaking at the 6th Delhi Economics Conclave recently, he said, “Loans should be devised in a flexible manner, providing options like automotive moratorium if borrowers are under a period of unemployment.”

The non-performing assets (NPA) in the education loan sector are expected to stabilise with a credit guarantee fund being set up to offer collateral free loan of Rs.4 lakh. There is only 2.7 per cent growth seen in the education loan portfolio in September 2015 compared to September 2014.

Bankers are now trading cautiously on education loan disbursal for the past few quarters and as a result growth in education loan has slipped to single digits. Due to non-performing assets in the education loan segment, bankers had approached the government for a credit guarantee fund of at least Rs.2500 crore.

The maximum loan limit under the Credit Guarantee Fund Scheme for Education Loan (CGFSEL) is Rs.7.5 lakh without any third party guarantee. Loans up to Rs.4 lakh will be provided in full and above Rs.4 lakh for domestic studies, students will get only 95 per cent loan and for international studies, they will get 85 per cent loan.