It is traditionally believed that the Goddess of Wealth - Lakshmi - and the Goddess of Wisdom - Saraswati, do not go together. However, of late, the Indian banking sector has proved that they can be brought together for the benefit of the seekers of knowledge. Banks have gone a fairly long way in extending educational loans to the bright students to pursue higher education in India and abroad. The profit-conscious bankers have realised the importance of playing their own role in encouraging capital formation through human development.
According to the latest available data, public sector banks have lent an amount of Rs.19,844 crore as educational loans as on March 2008. The number of borrowing accounts serviced by them is 12.98 lakh. A large number of bright young students from various disciplines have been enabled to obtain professional degrees from the reputed universities, supported by bank loans.
Historically, it was two of the South Kanara-based banks - Canara Bank and Syndicate Bank - which were the pioneers in extending educational loans. Banking companies and educational institutions have grown up together in this small district, which has come to be recognised as the cradle of banking. The proliferation of educational institutions has culminated in the emergence of four universities in the undivided district.
Educational loans prioritised
 After the advent of priority sectors and the classification of educational loans as priority sector loans, all banks have entered into this field. With a view to enabling the bright young students to pursue collegiate studies, banks were advised to extend credit facilities, without insisting upon securities. For prosecuting studies abroad, educational loans of up to Rs.20 lakh are made available from banks all over the country. With a repayment holiday, until the scholar secures a job, loans are given with the parent joining as co-obligant. Banks are now putting a smile on students’ faces, as the advertisement of one of the public sector banks claims.
Though initially, banks were a bit sceptic about these loans, soon they realised the opportunities such loans could create for the poor but meritorious students. The professional colleges, whose number was multiplying during the last decade and whose educational fees were growing by leaps and bounds, could get enough students, thanks to the loan facilities offered by banks.
There has been a remarkable growth in educational loans during the last decade. They have increased from Rs.1085 crore in 2001 to Rs.19,844 crore by March 2008. The number of students availing bank loans has grown from about one lakh to nearly 13 lakh by now. Public sector banks are the major lenders in the field of educational loans. The private sector banks have played so far a minor role. The total advances made by all the private sector banks are Rs.509 crore only, accounting for 0.20 per cent of their total advances.
The latest data available in the macro-economic and Monetary Policy Development Report released by the Reserve Bank of India in April this year, reveal that the total educational loans outstanding have gone up to Rs.27,832 crore as on February 2009. The year-on-year increase is of the magnitude of 33.8 per cent
Public sector banks excel
It is indeed creditable that the public sector banks have taken the lead in educating the nation. State Bank of India has the highest share in educational loans, accounting for nearly 40 per cent of the total educational loans made by the public sector banks - Rs. 4413 crore. It also has the largest number of borrowing accounts. Canara Bank ranks second with an amount of Rs.1737 crore. Five other public sector banks - Andhra Bank, Punjab National Bank, Indian Bank, State Bank of Travancore and Bank of India - have educational loans exceeding Rs.1000 crore each. It is interesting to note that one of the associate banks, State Bank of Travancore, ranks sixth among them. This Kerala-based bank would have certainly made its contribution to the attainment of the high literacy level by the state.
 Syndicate Bank is ranked at the ninth position in lending to the educational sector. Its rank improves to fifth position, if the number of educational loans handled is considered. The four nationalised banks originating from South Kanara district have maintained their close links with educational institutions and the student fraternity. Collectively, they have lent an amount of Rs.3344 crore, extending loans to 2.31 lakh students. It may be added that, Karnataka Bank Ltd, the lone surviving private sector bank from this district, also has been lending a helping hand to students. In a press release the Bank has reported an increase of 27 per cent in its educational loans during the period March 2008 to February 2009, with the amount outstanding going up to Rs.73.68 crore.
According to a recent press statement of Corporation Bank, there has been a 45 per cent increase in its educational loans during FY2009. As on 31 March 2009 these advances have reached the level of Rs.660 crore. The other, South Kanara-originating bank, Vijaya Bank, slightly lags behind, ranked 18th, with an outstanding level of Rs.303 crore.
 Regional inequalities
While regional inequalities in the accessibility to banking facilities are a well-known phenomenon in the Indian economy, it is not often recognised that the inequalities in the availability of educational loans are even more pronounced. The vide variances in the literacy ratios among the states are another factor, which gains importance in the analysis of regional inequalities. The amount lent by banks varies from less than Rs.5 crore in three states to over Rs.1000 crore in five states.
Tamil Nadu leads in educational loans, with Rs. 2363 crore lent to 2.25 lakh students. Nearly 20 per cent of the beneficiaries of educational loans in India are in this state alone. Andhra Pradesh closely follows with an amount of Rs.2332 crore. The number of borrowing accounts is much lower at 1.49 lakh. The inference which could be drawn from these figures is that the loan per student in Andhra Pradesh is higher than that in Tamil Nadu. It is quite likely that in the case of the former, most of the loans could be for studies abroad.
Kerala, the state that claims to have attained 100 per cent literacy in many of its districts, ranks third. The advances made by banks here are Rs.1850 crore. Besides State Bank of Travancore, the public sector bank, there are four private sector banks of the old generation having extensive presence in the state. Traditionally, these banks have been extending small amounts of educational loans and they continue to do so even now, against the competitive lending prowess of the public sector banks. The web sites of these banks do list out the educational loans. But hardly any indication about the amount lent is provided either in the directors’ annual report or in the press releases preceding the publication of annual results.
Maharashtra comes next in the fourth place. Despite the concentration of all banks in the financial centre and the existence of major educational institutions of international repute, educational loans provided by banks are not more than Rs.1284 crore. The number of loans extended is dismally low - 0.76 lakh. This aspect needs to be studied in detail.
Karnataka has a large number of engineering colleges and medical colleges producing one of the largest numbers of professionals every year. The Silicon City attracts IT professional from all over the country. But the credit facilities extended to education appear to be relatively low. The total advances remain at Rs.1155 crore and the number of students who have borrowed is only 0.87 lakh.
Among the BIMARU states, Bihar has received the lowest amount of educational loans- Rs.266 crore, while Uttar Pradesh gets Rs.752 crore, Rajastan Rs.324 crore and Madhya Pradesh receives Rs.475 crore. The number of students assisted in the four states is 1.39 lakh only. Considering the total population of these states, the reach out of the banks to students remains not very encouraging.
In Delhi, the national capital region, banks appear to be not very liberal in financing studies in India or abroad. The amount lent is less than Rs.600 crore. West Bengal also lags behind in seeking the support of banks. Gujarat gets bank loans more copiously than educational loans. Goa attracts more foreign tourists than bankers to lend to students. It is a bit surprising that two states - Punjab and Orissa - with divergent levels of achievement in economic development, have obtained an equal amount of educational loans- Rs.330 crore.
In the four states in the north-east, Arunachal Pradesh, Manipur, Meghalaya and Nagaland – educational loans are very low. This may be partly due to the disturbed political situation in some of them and the lack of demand for such loans. It is an undesirable feature from the point of economic development.
The progress card
There was a time, when educational loans were not as readily available as now and the grateful beneficiaries of these loans were maintaining deposit accounts with the banks after they settle down in life. One of the senior general managers of a south-based bank, I remember, was mentioning with great satisfaction that during his morning walks, one or the other beneficiary of educational loans would greet him with gratitude. Even the files of small branch managers used to have letters of gratitude from students. The size of the loans was smaller then and the recipients were not many. But bad loans were very rare.
Though the rate of interest charged is not lower than the PLR, some banks offer 0.50 per cent reduction in interest rate for prompt repayment. To encourage girl students to pursue higher education, a reduction of 0.50 per cent in interest rate is offered by some banks. State Bank of India has announced recently of a reduction of 200 basis points in the rate of interest for educational loans during May 2009 to September 2009. Loans up to Rs.4 lakh would be available at 11.5 per cent per annum.
In the recent years, while the banks have assumed the role of educating the nation quite seriously, some unhappy developments have crept into this segment.
It is observed that the frequent job-hopping tendency on the part of the young professionals makes it difficult for the bankers to keep track of the borrowers. Some of them become untraceable within a couple of years after the completion of their studies. Parents sometimes become indifferent in responding to the banks’ queries. Instances, however, are not wanting, where the aged parents are traced to some remote old-age homes, while the borrower-son counts his dollars somewhere abroad.
The data about the incipient bad loans in the educational loan segment are not available in any published report. One of the chief executives of a private sector bank of the old generation has disclosed that the ratio of net NPA in educational loans is 1.4 per cent. The borrowers being highly educated persons and professionals earning fairly high incomes, the NPA level should be zero in these advances. Educating these borrowers, and stressing upon their moral obligation has to be an important of the pre-sanction formalities.
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