Education loans are a big casualty in pandemic

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Education loans have turned out to be a big casualty in the pandemic. Delay in college admissions, deferred payment options provided by educational institutions, online learning and delay in disbursements by banks on several counts have cumulatively impacted the education loan segment.

Total education loan outstanding has reported a 3.3% year-on-year drop to Rs 64,680 crore as on December 18, 2020, according to the Reserve Bank of India’s latest monthly data. This follows a similar 3.2% year-on-year fall in December,2019. The bank credit deployment in education loans stood at Rs 69,115 crore as on December 21, 2018.

A close look at the bank credit data reveals that education loans is the only segment among personal loans that reported a negative growth in 2020. As a whole, personal loans grew 9.5% year-on-year in December 2020, although it means a stark deceleration from 15.9% year-on-year growth it reported in December 2019.

As Covid-19 wreaked havoc in the US and Europe in 2020, a legion of students decided to pursue education in domestic colleges and opted out of their ‘foreign’ dreams.

“The mismanagement of the deadly pandemic in some countries led to a massive casualty in the US and the UK, two major destinations of Indian students. This has been the primary trigger for the drop in fresh education loans. In general, parents were hesitant to send their kids abroad. Some of them even forbade their wards to go outside their state limits. Some students on their own opted to study in local colleges to avoid travel,” said a banker.

In 2020, some banks slowed down the disbursement of education loans, leaving students in the lurch. Several students had to cough up fees on their own. Some banks were insisting on their final-year certificates as a prerequisite to continue the loan disbursal.

Education loans by leading public sector banks attract a cheaper rate of around 6.8-7.2%, thanks to the benign interest rates in India at present. However, some private/cooperative banks levy interest rates as high as 16% on loans up to Rs 1.5 crore, depending on fixed interest rate loan or floating rate loan.

Besides the interest rate, some banks levy ornamental charges such as processing fee, prepayment charge and foreclosure levy, among others. Normally, education loans have a moratorium period and one need not pay any EMIs during the course tenure. Most banks allow a 6-12 months’ break after the completion of the course, to help students search out and settle in a well-paying job.

Among personal loans, housing loans (including priority sector housing) reported an 8.1% year-on-year growth to Rs 13,93,500 crore in December 2020.

In December 2019, this segment had reported a massive 17.6% growth. Similarly, credit card outstanding grew 4.2% to Rs 1,10,350 crore in December 2020, a climbdown from the 25.3% year-on-year growth it reported in December 2019. Vehicle loans have continued to perform well, registering an accelerated growth of 7.8% to Rs 2,30,232 crore in December 2020 as compared to 7.2% growth it reported a year ago.

Banks have also gone slow on advances to individuals against share, bonds, etc. It has reported 4.1% fall year on year to Rs 4,867crore. However, advances against fixed deposits (including FCNR (B), NRNR deposits, etc), which reported a major drop in the previous year, have shown a marginal pick-up of 1.4% to Rs 65,332 crore, though it has a long way to catch up to the December 2018 figure of Rs 69,324 crore.