Indian students are still relying on government banks for education loans

• Over 90% of education loans are provided by public-sector entities in India, according to the Reserve Bank of India.
  
• For most PSUs and private banks, there is no security or marginal requirement value upto ₹400,000 loan amount.
  
• The education loan market witnessed a 25% dip in the last four years — with 250,000 students availing education loan as on March 2019.

Most private banks now lend only to students enrolling in the partnered universities including Indian Institute of Technology (IITs), Indian Institute of Management (IIMs) and National Institute of Technology (NITs). In spite of that, a large chunk of education loans are provided by state-owned entities.

Over 90% of education loans are provided by public-sector entities in India, according to the Reserve Bank of India data. This may also be due to the lower interest rates offered by the public sector undertakings.

The State Bank of India (SBI) offers upto ₹4 million loan, which is valid for a year after the completion of the course. The interest rate applicable on the loan ranges from 8.6% to 10.7% per annum. Others like Punjab National Bank (PNB) and Andhra Bank have no cap on the loan amount, with interest rates varying from 8.4% to 11.5%.

While the private entities — HDFC Credila and South Indian Bank — offer slightly higher interest rate on education loans. HDFC Credila’s interest rates stand at over 12.55% on loans above ₹100,000. The South Indian Bank has interest rates between 9% to 16% on education loans.

For most PSUs and private banks, there is no collateral (security or marginal requirement value) upto ₹400,000 loan amount. However, banks do require a collateral security of up to 5% for the loans exceeding the given amount.

Drop in Loans

In the larger picture, the education loan market witnessed a 25% drop in the last four years — with only 250,000 students availing education loan as on March 2019, TOI reported. This is due to the increased defaults in this sector, adding to Non Performing Assets (NPA) of banks.

Indian banks saw a rise in education loan defaults, with the number of bad loans in education increasing from 7.3% to 9% in 2014, according to Indian Banks Association.

The Indian government is now stepping up its efforts to address challenges in the education sector. The expenditure on education has reportedly increased from 3.8% of GDP in 2014 to 4.6% in 2018, according to Prakash Javedekar, Union Human Resource Minister.

See also:
More Indian students are defaulting on their overseas education bank loans: Report

Indian government introduces ₹50 million scholarship for minority students — dedicating half of it to girls

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