Education loan guarantee limit will be Rs. 10 lakh: Report
What's the story
The Government of India is considering raising the guarantee limit for education loans from Rs. 7.5 lakh to Rs. 10 lakh, according to The Indian Express report. Financial pundits think this action is aimed at supporting the call for Public Sector Banks (PSBs) to increase disbursements amid worries about loan application rejection and loan sanctioning delays, the report said.
Context
Why does this story matter?
Education loans have become essential for students due to the rising expense of higher education and the rising cost of education overall. Financial support may be quite helpful, and students who want to receive a top-notch education can choose them without worrying about the cost and return them after finishing their program. Financial experts have, however, criticized PSBs for the many administrative delays.
Credit guarantee fund
Current education loan guarantee ceiling is Rs 7.5 lakh
In India, the credit guarantee fund currently backs education loans up to Rs. 7.5 lakh, therefore banks are not required to request any collateral for loans up to this amount. However, the Department of Financial Services (DFS) within the Finance Ministry began speaking with the Ministry of Education about raising the guarantee ceiling by 33%, to Rs. 10 lakh, claimed The Indian Express report.
Uniformity
DFS in favor of uniform credit guarantee
Official sources told The Indian Express that DFS is in favor of increasing the collateral-free limit for education loans and talks are on with the Education Ministry to agree on an increase to either Rs 10 lakh or higher. "If this move is implemented, then the credit guarantee for education loans will be uniform across the country," it said.
Development
Crucial meetings of PSBs over loan disbursement objectives
According to the IE report, DFS had already convened a meeting with 12 government-owned banks on August 25 and reviewed loan disbursement objectives. Notably, a bank official had requested that the department maintain consistency in the guarantee of education loans by looking at Delhi and West Bengal, where the entire guarantee is Rs. 10 lakh, as per the report.
Data
What does official figures reflect?
Official data cited by the IE report said 90% of education loans in the country are disbursed by PSBs while 8% of education loans disbursed by these banks till June 30, 2022, have turned into Non-Performing Assets (NPAs). However, gross NPAs of the banking sector dropped below 6% as of March 2022—the lowest since 2016—and net NPAs fell to 1.7% during the same period.