Banks have urged Reserve Bank of India to allow a cushion in education loans domain in the form of a credit guarantee scheme. Rising NPAs in the education loan segment have provoked banks to ask for such a scheme.

The idea was proposed in a meeting of RBI deputy governor Subir Gokarn and his team with heads of 11 banks in government, private and foreign domain. The meeting was attended by the chairmen of SBI, Punjab National Bank, Canara Bank, Bank of Baroda, ICICI Bank, HDFC Bank, Allahabad Bank, Karnataka Bank, foreign banks such as HSBC and Standard Chartered Bank.

The dipping asset quality of education loans owing to delayed repayments coupled with collateral free lending upto Rs 4,00,000 have posed a major concern for banks. "While the intention is for a greater common good, the borrowers defy repayments as the banks have no means to impound them," bankers said.

The largest lender of the country, State Bank of India has the largest exposure in this domain with outstanding loans amounting to Rs 10,498 crore at the end of Q3. Canara Bank follows SBI with Rs 3,259 crore, Punjab National Bank with Rs 2,631 crore, Indian Bank with Rs 2,624 crore and Bank of India with Rs 1,653 crores loan outstanding.

Bankers also asked RBI for a slash in cash reserve ratio (CRR) and statutory liquidity ratio (SLR) in the upcoming review of monetary policy on January 25.