The Study Loan

Banks are increasingly reluctant to extend study loans thanks to the size of the standard in this segment. A look at the new roadblocks to the formation of the highway.

Default Study

College fees -- two words that can strike terror into the heart of every parent. And if their offspring decides that a professional, or opts for a Master's Degree, woe parental love. The minimum fee to a specialized high school is Rs 35,000 (the better calculate more), while an MBA cost about Rs 2 pounds (Rs 200,000); At a foreign university the same comes with a day of the Rs 15 pounds (Rs 1 , 5 million) or so.

Yes, this is a bad message, but this one is worse. Banks are no longer offering study loans with the open hand generosity of a few years ago, especially for students who plan to study abroad. The reason for this is that the default rate is rising in banks' education loan portfolios. According to a public sector bank official, the problem of default is worse in the case of overseas education, as the students change their address, without the bank.

Even students from prestigious engineering and management institutions default on their payments. And banks find it difficult, due to the development of jobs and the city to jump-jump. Kiran Rao, for example, a study loan of Rs 12 pounds (Rs 1.2 million) from a public sector bank in 2004 to complete her engineering from a college in Bangalore. Then landed a job with an MNC in the USA, where they may raking in dollars. But the bank has not heard from her in more than two years, and Rao has not bothered to pay back their education loans.

But because of their social responsibility and political pressure, banks can not simply stop the study loans. Instead, they have decided to move the loans, so that their NPAs in this segment are not too unmanageable.

What's new

The Indian Banks' Association (IBA) has set up a working group to find out how the study loans can be a profitable business. On the basis of their recommendations, the banks have their standards.

Most banks have now mandatory for the students to parents or a legal guardian to cooperate borrowers and therefore liable for the repayment. Rajan Ghogalkar, corporate head, Retail Banking, IDBI Bank, says: "Our study focuses on loans to the borrower parents. It is sanctioned only after the parents of stay. They are also the co-operation to facilitate the recovery borrowers. "This makes it even easier for banks to the students whereabouts.

The group has also suggested that banks disburse loans from branches close to the permanent residence of the student-borrower. This would help banks to credit in a cost-effective manner.

The risk

The IBA has also debate a Rs 250 Taka (Rs 2.5 billion) Credit Guarantee Fund on the basis of "Credit Guarantee Trust Scheme for small industries. This would cushion loan defaults, and will also serve as a group insurance.

It was suggested that half of the corpus be funded by the central government, while the rest could be shared by the banks and the borrowers. The student-borrower is a premium of say Rs 15/10 per Rs 1 pound (Rs 100000) borrowed, and the bank can claim the insurance, if the student defaults. The proposal is under consideration of the Reserve Bank of India and the Union Ministry of Finance.

Some banks already had insurance to cover such a loan. UTI Bank, for example, asks borrowers, a LIC, the 10% of the loan, while Andhra Bank offers insurance to protect the students and their parents.

Most foreign universities on the compulsory health insurance and have a waiver clause if the student has a comparable insurance in the parent company. On the whole, it's a good idea, insurance, as foreign policy generally relate only to medical care. They are also far more expensive -- the difference in costs can work on 35000 Case It takes about a day to the right insurance; The insurance request to the student visa and admission letter before it sells the appropriate coverage .

Loan Offer

As we said, the banks are still the study loans, despite the higher default. All products of the credit in this portfolio, the RBI approved model education loan program. The quantum and duration of the loan can be from bank to bank, and also depends on the educational institution. The loans typically cover the tuition fees, examination, library and hostel fees, travel expenses, books, equipment and uniforms, and sometimes even the cost of a two-wheeler.

Before joining the loan, banks study the viability of the borrower on the basis of personal interviews with the students, family's assets and annual income, the nature of the course and reputation of the institute.

The best deal

The problem with the study loans is that few banks offer a concessional. In general, banks 10.75% on loans below Rs 4 pounds (Rs 400,000), and 11.75% on loans over Rs 4 pounds. (For loans up to Rs 4 succeed, the banks lend to their prime loans, and 1% above FDP for loans of more than Rs 4 pounds).

Some banks offer lower prices for women students, or by certain institutions. Andhra Bank, for example, loans to 10% of students choose institutions, while women enjoy a discount of 0.5%.

Students who sign of good financial discipline, get a further discount of 0.5%. Bank of Baroda also offers a 1% discount for women students under its three systems -- Vidya Baroda, Baroda Scholar and Baroda Gyan.

The best approach banks for these loans are public banks, as most private and foreign banks virtually ignore this segment. HDFC Bank does not offer study loans, while for ICICI Bank is not a priority when it comes to a study loans. HSBC is the only foreign bank that lays emphasis on its study loans; In addition, the Bank of scholarships for students wish to study in Britain.

So why private banks eschew this segment? A senior official at a private bank said that it is a highly regulated segment with guidelines forbid that the rejection of applications that opposed the lending habits of private and foreign banks. The other problem is that the institutes and universities are very often outside the geographical area private banks. Public sector banks are better able to serve these places.

Tax advantages

While banks are not too sure about the viability of these loans, borrowers are not complaining. After all, the repayment of the loan is a study deductible under section 80E of the Income Tax Act. The annual ceiling for the deduction is Rs 40,000 (principal and interest), but applies only to loans for higher education -- graduate or post-graduate studies, professional, and pure and applied science. The deduction is for a maximum period of 8 years from the date of redemption.

Ready Calculators

Do you want a loan for this course abroad or an MBA? Choose these basics before you go to a bank for funds.

Interest rate banks charge on loans 10.75% at Rs 11.75 pounds and 4% on loans over Rs 4 pounds. Some banks offer 0.5% discount for women.

Borders. The maximum loan amount is limited to Rs 7.5 pounds (Rs 750,000) for studies in India and Rs 15 pounds for studying abroad. The minimum loan amount is Rs 50,000.

Fees. There is no additional cost or processing fee and banks do not ask for any margin for loans up to Rs 4 pounds. For loans of more than 4 Rs succeed, borrowers should pay 5% of margin money for domestic loans and 15% margin money for foreign loans.

Processing time Depending on the bank, loan amount, and the paperwork will take a little bit from two days to one week for the loan application processed.

Repay. The repayment will begin one year after the course or period of six months after the student secures a job, whichever is earlier. The deadline for the repayment of the loan is usually five to seven years and could be linked to the increase in the borrower's salary.

Collateral. Loans up to 4 Rs sum require no collateral. For loans of Rs 7.5 succeed, the banks want collateral in the form of property, government securities, public sector bonds, units of UTI, NSC, KVP, LIC, gold, stocks / bonds, bank deposits in the name of the student / parent / legal guardian or any other third party with suitable margin.

Documentation. The bank will demand your ticket, schedule for the cost, copies of letters confirming scholarship, etc., copies of foreign exchange permit, if applicable, statement of bank account for the last six months of the borrower and income-tax assessment order not more than two years old, together with a brief statement of assets and liabilities of the borrower.



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