Dip in study loans continues, big-ticket ones on rise

Education loans had started slowing down since demonetisation, and have not seen a pick-up since

Education loans given out by banks have been on a steady decline for three years now, shows the data by the Reserve Bank of India (RBI). The size of the education loan book of Indian commercial banks is nearly ~65,000 crore — about 0.3 per cent of gross domestic product.

While education loans outstanding were growing at a rate of 6-8 per cent till the end of 2016, the rate of growth started declining after December 2016 — a month after the demonetisation exercise was carried out. The decline has continued unabated, and at the end of November 2019, the outstanding has contracted by 3.4 per cent.

However, what is worse is that the fall is only in the size of loans less than ~10 lakh — labelled priority sector education loans. The high-value loans (non-priority sector) are actually rising, the data shows. Priority sector loans generally cater to the less privileged students.

Priority sector loans for education have been falling since the beginning of 2016 itself. The fall (year-on-year) is getting sharper now.

Experts feel that the higher supply of seats and a dearth of job opportunities for candidates taking courses such as engineering have resulted in fewer students taking finance-intensive courses.

According to the RBI data, the sum of outstanding education loans smaller than ~10 lakh declined from ~60,000 crore in March 2016 to ~53,000 crore at the end of November 2019. In nearly the same period, big-ticket educational loans rose from ~8,000 crore to ~14,000 crore. The pace of growth in big-ticket loans, however, is falling.

Former chairman of the University Grants Commission and eminent economist, Sukhadeo Thorat, told Business Standard that the primary reason for this could be a decline in the number of students taking up engineering courses.

“In the past few years, there has been saturation in the engineering stream, and the enrolment is falling. This could be the reason students are not needing education loans with the same vigour,” said Thorat.

The data on higher education enrolment supports this argument.

The enrolment in engineering courses in Indian colleges and universities declined from 4.25 million in 2014-15 to 3.77 million in 2018-19, losing nearly half a million students in a span of four years.

Other experts also alluded to the rising trend of education loans turning sour. Education loan non-performing assets (NPAS) are rising, according to the Indian Banks’ Association, and the NPA ratio for engineering loans is as high as 10 per cent.

The Ministry of Human Resources and Development runs a scheme for students, wherein a ‘trustee company’ gives a guarantee on loans up to ~7.5 lakh, to an extent of 75 per cent, from 2016-17.

The official data presented in Parliament shows that the number of students who took the benefit of this scheme rose till 2017-18, but declined sharply in 2018-19. In the current financial year, too, the beneficiaries’ count looks to be dipping.

The amount guaranteed reduced too, from ~3,400 crore to nearly ~2,000 crore in 2018-19. In the first eight months of 2019-20, educational loans worth

~600 crore have been covered.

Experts also mentioned that the data suggests that the poorer sections of society could be borrowing less due to their weak ability to service loans.