Covid-19 Hits Surge of Education Loan NPAs in India

On Monday, 15 March, a question on Educational loans was put up in the Lok Sabha for the Honorable Finance Minister, Smt. Nirmala Sitharaman. Kati P. Chidambaram’s had asked the ministry to gather the status-quo of the outstanding Educational loans and its Non-Performing Assets ( NPAs) in the country, state-wise and streamwise. Adding to this, it included, the steps by the government to tackle this situation.

In the reply, Smt. Sitharaman said, “In order to help the borrowers to tide over difficulties in the wake of Covid-19 pandemic, RBI allowed a moratorium of six months on payment of all instalments falling due between March 1, 2020 and August 31, 2020 without an asset classification downgrade to borrowers which include Education Loans also.

Further, RBI, vide circular dated 6 August, 2020, provided a framework for resolution of stressed assets to enable the lenders to implement a resolution plan in respect of personal loans, including education loans, covering grant of a moratorium of up to two years while classifying them as standard subject to certain conditions.

Further, the Government provided ex-gratia relief by way of payment of difference between compound interest and simple interest, on the outstanding as of 29.2.2020, of eligible borrowers in the specified loan accounts, including education loans, for the period of six months from 1.3.2020 to 31.8.2020.”

As far as the numbers were concerned, the ministry put out the report of the State Level Bankers’ Committee, providing the details of NPAs in educational loan. It states that around 9.55% of the education loans lent by public sector banks are considered as Non-Performing Assets (NPAs) as of December 31, 2020.

The report presented that out of total educational loan accounts of 2.48 million, almost 90,000 crore amounted to outstanding. Out of these, 36 million accounts worth ₹ 8,587.10 were turned into bad loans. Data showed that Tamil Nadu with 20.30 %, Puducherry with 19.37% and Bihar with 25.76% contributed to the large chunk of the NPAs.

As per experts, the pandemic of Covid-19 has witnessed high drop-out rates, and job and income loss, owing to which repayment of loan becomes hard.

The Finance Ministry quoted the report by the Reserve Bank Of India (RBI) explaining the percentage of the loans in Housing, Vehicle, Consumer Durables, Agriculture, Industry and other retail loans. In the Educational sector, the surge of loan could be seen in FY 2019 with 8.29% in the last three financial years. The supply of loans in FY 2020 stood at 7.61% and 8.11% in the year ending March 21, 2020.

Percentage of NPAs under Education Loans vis-a vis other type of loans

(In percent)

Source: RBI

In terms of categorization as per stream-wise amount of NPAs and outstanding education loan, Engineering and Nurses courses stood highest with 14.15% and 12.13% of the NPAs respectively. Approximately, 33 thousand crore and 4 thousand crore loans are outstanding to be paid.

Stream-wise number and amount of outstanding education loans and

Non-performing Assets (NPAs)as on 31.12.2020

Source: State Level Bankers’ Committee

Even in the state-wise departmentalization, Engineering and Nursing has seen an increase in the Education Loan NPAs in the last three financial years. There is a significant growth of NPA noticed in each following past three financial years.

The NPAs in Engineering jumped from 7.73% in FY 2018 to 13.67% in FY2020. Whereas, Nursing showed the same pattern, with NPAs increasing from 12.96% in FY18 to 15.18% in FY200.

Though, Medical profession had the highest NPA in the FY2019 with 10.27% of the bad debts, it showed a decline in the FY2020 standing at 7.60%. MBA courses also saw a decline in the bad debts with 8.37% in FY 2019 to 7.43% in FY2020. 

Source: State Level Bankers’ Committee

In an interview given to Hindustan Times, K.R. Shyam Sundar, a labour economist and academician said, “In an income loss and job loss situation, education loan repayments have taken a back seat against survival. Besides, students have gone for a deferment of their education and many must have dropped out from courses such as engineering, contributing to the surge in non-performing assets”.