Education loans attract specialist lenders

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MUMBAI: Education loans advanced by banks have grown by a measly 2.7% in FY17—half as much as the average growth rate of all loans. But that’s only half the story.

Specialist lenders are growing rapidly and private players are looking at this segment. Education loan specialists like HDFC Credila and Avanse have seen growth rates ranging from 40% to 70% in disbursements even as new age lenders like In-Cred Finance are eyeing the sector. Ajay Bohora, co-founder and CEO of HDFC Credila, says it’s clear there is great demand. The shift in government focus to primary schooling has resulted in private institutions filling the gap in tertiary education. Secondly, in India and globally, cost of attendance (fees and other expenses) for tertiary education has been rising faster than inflation which is taking it out of reach of the middle class.

HDFC Credila has disbursed Rs 1,300 crore of loans in FY17, which is slightly lower than the Rs 1,800 crore increase in the education loan portfolio of banks. Bankers say they have pulled back from education loans because bad loans are high(7-8%). This is particularly true for the sub-Rs 4 lakh category where banks do not demand any security.

According to a senior PSU bank official, the reasons for the defaults are two-fold. One, engineering and management institutions have mushroomed but the quality of education has not been up to the mark. Two, many students relocate after graduation and their loans turn intoNPAs. “A lot of education loans are probably camouflaged as personal loans or loans against property,” said Prashant Bhonsle who heads the education loan vertical at In-Cred Finance. According to Bhonsle, students are rushed for time and at many banks it is faster to get a personal loan or a loan against property. The downside is that the interest paid cannot be claimed as deduction under Section 80E of the I-T Act.

[Source:-TOI]