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PSBs look to clean up education loans

Chennai, Nov 16, 2022

Public sector banks (PSB) are rolling out several initiatives to recover legacy non-performing assets (NPAs) in education loans. The options include one-time settlement (OTS) or sale of bad loans to asset reconstruction companies (ARCs). They are also looking at newer loan products as demand for higher education loans is rising.

Indian Overseas Bank, which had fresh slippages of Rs 300 crore during the quarter ended September on account of education loans, is selling these bad loans to ARCs in an attempt to get them out of the balance sheet. IOB MD & CEO Partha Pratim Sengupta told TOI that OTS for education loans has been launched recently. He added that ARCs were also showing interest and negotiations were going on. These were legacy loans that remained unpaid for seven to eight years.

Another leading PSB, Indian Bank, has around 3.7% of its gross NPAs in the education loans bracket. Of the total Rs 32,000 crore of gross NPAs, Rs 1,183 crore fell under the category of education loans. During a recent interaction with the media in Chennai, Indian Bank MD & CEO S L Jain said, “Of course, education loans in our NPAs are more. But what we have done is we have revived our education loans scheme and we are giving competitive rates to all — whether it is IITs, IIMs, top engineering and management schools.”

According to a senior banker, bad loans are higher in the sub-Rs 4 lakh category which are in the nature of unsecured loans. However, among these too, awareness of credit scores is encouraging borrowers to come forward for a settlement.

All India Bank Employees Association general secretary C H Venkatachalam said several students who had availed education loans are struggling to repay because they are either unemployed or underemployed. “Wilful default will be very negligible. So, the government must take a lenient view on education loans that have become NPAs and subsidise or pay the interest, such that banks will not turn them into bad loans.” Selling to ARCs will lead to pressurising the students and parents, he added.

[The Times of India]

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