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When Akshat got through a premier B-school in the country, he, like many others, applied for an education loan. As expected, he had little difficulty in getting one. After the completion of the course, Akshat landed a job in one of the best MNCs in the country, with a salary of 14 lakh per annum. Now comes the bizarre part. While one would expect him to pay back the loan with ease, Akshat forgot about it. Why? He just didn’t care.
Akshat’s is not a one-off case. Banks say that there are many who, despite earning well, are lax about paying back the loan.
So, what exactly is making young Indians so callous when it comes to paying a few thousand as EMI?
The answer to this mystery lies in the loan amount. A large part of banks’ education loan accounts, around 62%, is under Rs. 4 lakh. Since the amount involved is small, banks do not find it viable to persist with the recovery process. Also, there is no collateral security involved for loans falling under this category.
According to data available with Indian Banks’ Association (IBA), the number of education loan accounts has increased over seven-fold, while loan outstanding has increased nine-fold between 2003-04 and 2010-11.
“Though our education loan default is far less than other banks, we have seen an increase in the last few quarters,” said Ram Sangapure, general manager, Central Bank of India.
Top officials of banks attribute it to lack of awareness among youngsters on the ramifications of not repaying their loan. This generation fails to understand that defaulting on loans affects credibility and narrows down options of getting another loan in the future, said an expert.
“The policies are such that for meritorious students we can’t really demand any security,” said Sangapure. Economic slowdown also has a role to play. Sometimes, when students do not get the kind of job they are looking for, they prefer to wait for the right job which inevitably delays the repayment of loan. Sometimes, students just do not have the intention to pay back, opine bankers. With the problem getting bigger, banks have decided to approve a loan only after assessing their earning capacity rather than their family wealth.
