Budget 2012: Banks Likely to get Education Guarantee Fund from Govt

With the Union Budget all set to hit soon on March 16th, lenders mainly the public sector banks hope that the government will come up with a special guarantee fund for educational loans up to Rs.7.5 lakh.

The rising number of Non-Performing Assets (NPAs) from the educational loans segment has been an increasing concern and the amount of default has almost doubled in the year 2010-11 to Rs.1,600 crore as against Rs.750 crore in the preceding year.

Recently, banks have urged the government for ‘Credit Guarantee Scheme for Education Loans’ (CGSEL) with an initial corpus of Rs.2,500 crore. The proposal to the government is that education loans up to Rs.4 lakh (without any collateral) could be guaranteed up to 90% (subject to matter of 3.6 lakh) of the amount of default. And for the loans up to Rs.7.5 lakh (secured with or without third party guarantee), the guarantee fund will be restricted to 80% of the amount of default, subject to a maximum of Rs.6 lakh.

Speaking on the need for guarantee fund, an official from a public sector bank said that though repayments pick up once a young graduate gets a good job, the fact that the asset has become non-performing is a discouraging factor for further lending to the education loan segment.

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