With unemployment rising, the ability of those who took out education loans plummeted. As a result, non-performing assets (NPA) have increased over the past year and a half.
R. Nagarajan took out a loan for an engineering course and began to pay off it when he got a job at a startup in the second half of 2019. A few months later, COVID-19 erupted and the startup closed, leaving him and seven of his colleagues jobless. “I have not been able to repay the loan for over a year. And now I have a job with a lower salary, and soon I will have to close the loan, ”he said. With the rise in non-payments due to COVID-19, banks are taking great caution.
According to CRIF High Mark Credit Information Services, the educational loan market in Tamil Nadu grew to Rs 20,200 in March 2021 from Rs 18,600 in March 2019. The data also showed that NPA, measured in terms of portfolio risk (PAR) for 91-180 days, increased to 16.3% as of March 2021 from 15% at the end of March 2020. PAR is the share of overdue loans (for a certain number of days) in the total amount of outstanding loans.
A senior official at an Indian bank based in Chennai confirmed that the number of NAPs in the education loan sector has increased significantly compared to the period before the pandemic, attributing this to rising unemployment and underemployment. For the Indian Bank alone, NPA increased by about 17.2% to Rs 1,197.51 in June 2021 from Rs 1,021.1 in September 2020.
Even those seeking new education loans find it difficult to secure sanctions. Parents of many students who Hindu said that after the outbreak of COVID-19, banks were reluctant to authorize loans, and some complained that their cut salaries did not meet the requirements of the banks.
The data shows that disbursements on education loans declined to Rs 1,478 crore in fiscal 21 from Rs 2,420 in fiscal 20. But bankers say payouts were low for a variety of other reasons.
Decline in demand
A spokesman for an Indian bank indicated that there has been a decline in demand, mainly due to a decrease in demand in recent years for engineering education, which represents the majority of loans of less than 7.50 lakhs. Typically, most of the loan demand is for engineering, medical and management courses. He said the bank was not careful about lending as loans up to 7.50 lakh were covered under a loan guarantee scheme.
“Tamil Nadu is an important region for education loans, as the state accounts for one-third of the total loans in the country,” said Vipul Jain, head of product at CRIF High Mark.
Under the central sector interest subsidy scheme, a full interest subsidy is provided for the period of the moratorium (exchange rate period plus one year) on loans of up to 7.5 lakhs taken from planned banks. Benefits apply to students in weaker grades with parental income of up to 4.5 lakhs per year.
Some experts noted that political parties promising to waive education loans also affect the payments and grades of CIBIL students (a grade is an indicator of creditworthiness). Dropping the education loan is one of the promises of DMK as well as AIADMK in the 2021 Assembly elections.