Banks are slowly shying away from education loans, and the worry over increasing bad loans is to blame.

Banks are slowly shying away from education loans, and the worry over increasing bad loans is to blame.

In the one-year period beginning May 2017, the priority sector loans of scheduled commercial banks (SCBs) fell over ₹2,000 crore — from ₹59,300 crore in May 2017 to ₹57,200 crore this May. The trend continues this year: the first quarter saw a 5.7 per cent fall in gross bank credit towards education loans, according to data from the Reserve Bank of India.

Under priority sector lending (PSL), individuals are disbursed education loans of up to ₹10 lakh for studies in India, and ₹20 lakh for pursuits overseas.

Interestingly, the State Bank of India has now put up hoardings advertising high-value education loans: those in excess of ₹1 crore.

Bad-loan woes

Some bankers attribute the decline in priority sector loans to prudent lending. “All is not well in the education loans portfolio, but we expect it to improve,” said a senior SBI executive in response to a query.

Government data showed that at the end of the third quarter of last year, SBI had ₹915 crore of bad loans in this segment, of a total exposure of ₹1,565 crore.

In January, too, SBI put up ₹382-crore worth of NPAs in education loans for sale to asset reconstruction companies (ARCs).

Other banks, too, are easing up on education loans. Punjab National Bank’s share of education loans as a percentage of the total retail loan portfolio was steady at 8 per cent for FY16 and FY17, but in FY18, it fell to 7.4 per cent.

The overall outstanding in educational loans fell from ₹69,700 crore to ₹69,200 crore.

A senior executive director of a public sector bank said there has been not much job creation in recent years and that students are unable to service loans due to delays in finding employment.