Becoming fresh graduates with flying colors and yet no job in hands due to lukewarm market has held many students as defaulter for not being able to pay their educational loans. Currently, Non-Payment of loans has marked a rise up to 7%-8% of the total outstanding, which a year ago was 5%.
According to the estimates of Industry, the gross NPAs (non performing assets) or bad loans of a few nationalized banks as well as small scale private banks are seeing a 7% to 8% mark.
The gross NPAs in educational loans have been increased for the past two to three quarters now, as told by TM Bhasin, CMD, Indian Bank.
With Indian Bank facing 5% of its educational loans as bad loans, the other Banks such as Indian Overseas Bank (IOB), bad loan stands at around 8%, at present.
M Narendra, CMD of IOB explaining the cause to be the economic slowdown, leading to scarcity of even low paid jobs, said this has affected the Bank loan repayments.
Other bankers say that entry-level salaries such as 2 lakh to 2.5 lakh per annum is seldom raised, which has also hit loan repayment to some extent.
The ongoing interest rates i.e. 12%-13% for educational loans make the monthly installment (EMI) of an average loan of 4 lakh to be 8,900 per month. The expenses factors including Rent and transportation add to the cost of living and force many to default on EMI, stated a senior banker.
Other major reason for rising delinquencies are unexpected circumstances beyond the control of borrowers, like frequent job hopping for better salary and a shifting residence said AK Bansal, chairman of Corporation Bank.
The bad educational loans of Corporation Bank doubled to become 130.56 crore during the third quarter of the current financial year as compared 58.53 crore during the corresponding quarter of the former year.
The situation may get better by the end of the quarter after government promises to pay interest component on loans taken prior to 2009 by a section of borrowers. The centre shall allocate 2,600 crore which will benefit about nine lakh students who had borrowed before 2009, as told by Finance Minister.
Union Finance Minister, P Chidambaram had presented the interim budget for 2014-15 in Lok Sabha last month, during which he announced paying outstanding interest of loans taken prior to 2009.