Students of the listed educational institutes will gain access to loans in a hassle-free manner

The government is mulling the possibility of creating a list of top grade educational institutions in a bid to streamline the process of extending bank finance to students aspiring to pursue higher education.

Such an exercise will enable students of these institutions avail loans in a hassle-free manner since banks will give preference to students from the listed collages.

Officials at the ministry of human resources had a meeting with banks recently on this a few weeks back. The ministry is likely to appoint a committee to study the issue and prepare a list of top grade institutions across verticals, said a banker who attended the meeting.

“A re-look at the process is warranted due to the complaints on the ground that many eligible students are not getting access to loans to pursue higher courses,” the person said.

Students of these institutions may have easier access to banks for education loans, the banker said.

In the recent years, banks have significantly increased their exposure to education loans.

Until end-November, banks have lent Rs 62,800 crore to students, which grew by 4.6 percent so far this fiscal year. State Bank of India has the largest exposure in this segment with an exposure of Rs 15,387 crore as of end September.

Due to a rise in stress, in 2010-11, banks had sought the grading of collages to minimise risks on such loans. But the plan didn’t work out.

Typically, banks lend to students at 10-11% for tenure of five-seven years. Under norms, banks cannot accept any security for loans up to Rs 4 lakh. For loans between Rs 4 lakh and Rs 7.5 lakh, students need to furnish a personal guarantee from any working individual. For loans above this, lenders typically ask for collateral.

In the recent years, banks have significantly cut down their exposure to the segment on account of an increase in bad loans from the segment, which typically falls between 3 percent and 5 percent for most banks. State-run banks are major lenders to students.

One of the reasons for non-performing assets (NPAs) from the segment is the poor compensation levels the students get once they join a job. Nursing is an example.

Currently, students availing education loans need to begin repayments one year after getting a job. The government compensates the interest amount to banks until the repayments begin.

But according to the official quoted earlier, the government has paid only half of the total amount of interest claim to banks in the financial year 2013-14.

(Kishor Kadam contributed to this story)