A news item that a prominent public sector bank sold unpaid education loans to a private institution created a flutter.
Banks in Kerala have lent Rs 9,466 crore for 3,87,972 students for educational purposes as of March 31. As many as 32,345 borrowers have defaulted on repayment. The amount they have to repay runs to Rs 710 crore. That translates to 7.5 per cent of total education loans. The data presents a cause of concern.
A large share of loans going sour may discourage banks from issuing more education loans. At the same time, if recovery is entrusted to private firms, there will be swift action as employees’ salaries would be based on the rate of recovery. They would relentlessly pressure borrowers to repay, even when there are no assets pledged. Unlike banks, they would not be confined by RBI norms barring harassment and threatening of borrowers. I think the norms governing the recovery should be extended to private firms as well.
Banks are justified in taking strict action against those who default on purpose. But they could be prudent and sympathetic with genuine cases, and be the agent of social change rather than mere institutions for money exchange.
Those who have borrowed for courses like general nursing are unlikely to have defaulted on purpose. Instead of leaving such low-salary groups at the mercy of private firms, banks could give them more time to repay and reduce their interests. I feel sorry about the default on education loan repayment, particularly since I had successfully argued for the inclusion of nursing courses when Indian Banks Association was preparing its education policy in 2001.
Large-scale industrialists who had trouble with loan repayment were allowed long-term debt restructuring with very generous conditions. This makes up 11.1 per cent of the country’s total loans. This is above the 4.5 per cent estimated as non-recoverable loans. In other words, the country has 15.5 per cent bad loans.
Banks should also be considerate to those petty defaulters who are willing to repay but are unable to do so.
(The writer is a former chairman of Union Bank of India and the Board for Industrial and Financial Reconstruction)