Government asks public sector banks to adopt non-coercive strategy for education loans recovery – The Economic Times

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Synopsis–The non-performing asset (NPA) level in education loans had increased to 9.55% by December 2020, up from 7.61% in March the same year.

The government has asked state-run lenders to adopt a non-coercive strategy for recovery of education loans.

This comes after concerns were raised on the deteriorating education portfolio of banks. The non-performing asset (NPA) level in education loans had increased to 9.55% by December 2020, up from 7.61% in March the same year.

An official confirmed that the government has addressed this issue through its nominees on bank boards.

“We understand that in the last one year because of the pandemic there has been a spike in delinquencies, but banks have been advised to take due consideration. We expect this situation to improve as the economy gains steam,” the official said. Public sector banks (PSBs) hold up to 92% of the education loan portfolio.

A senior bank executive, however, said that with the resurgence in Covid-19 cases and subsequent partial lockdowns, it seems unlikely that the jobs market will see any massive uptick. “The borrowers who aren’t able to pay are mostly from tier 2 or 3 colleges and are at entry-level jobs. There has been significant retrenchment or pay cuts on those levels, which seems unlikely to get reversed in at least the next two or three quarters,” the executive said, adding that most banks are already offering a resolution plan to borrowers in order to keep such accounts standard.


The Reserve Bank of India, as a part of its resolution framework for Covid-19-related stress, has allowed lenders to implement a resolution plan in respect of personal loans, including education loans, covering grant of moratorium of up to two years while classifying them as standard, subject to certain conditions.

“Banks need to take a more cautious approach with education loans provided a little understanding on their part can help them have these students as lifelong loyal customers,” said MP Shorawala, a former independent director with Central Bank of India.

Going by subjects, those pursuing nursing formed the largest category that was unable to repay loans — constituting 14.15% of the sector’s total bad loan portfolio of banks. Loans disbursed towards nursing courses stood at Rs 3,675 crore as on December 20. Loans taken for engineering courses formed the second largest defaulting category, accounting for 12.13% of the total bad loan portfolio till December 20.

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