Education loans will no longer be coming the easy way for borrowers. Owing to the rising number of non performing assets (NPAs) getting associated with this loan segment, banks are now putting more cushions like asset mortgage and third party guarantee to it.
"While education loans are a priority area for us, it is a fact that NPAs under this portfolio are increasing," Mr M. V. Nair, Chairman and Managing Director, Union Bank of India said.
Another change that is on the cards is payment of interest in the moratorium period too. This would reduce the burden on the co-applicant later.
"In addition, I have also been advised to start payment of interest in the moratorium period itself when I approached State Bank of Hyderabad for a Rs 5-lakh loan for my son's engineering education," Mr P. Varaprasad, an Andhra Pradesh Government employee said.
According to Dr K. Ramakrishnan, Chief Executive, Indian Banks' Association (IBA), the idea of increasing NPAs in education loan sector could in fact be the resultant of overall slippages in banking industry.
"My own feeling is that there will be no wilful defaulters in education loans. As parents are involved as co-obligants, there is an emotional angle to repayments. The banking industry has huge faith in our youth," he added.
"At IBA, we will also study the issue of NPAs in education loans," he said.