Loan waiver not the solution for TN’s high NPAs in education sector: Financial experts

Eduacation Loan

CHENNAI: Both the AIADMK and the DMK announced education loan waivers in their manifestos for the upcoming parliamentary polls. While prima facie it might look like a great initiative for the youth, experts in the financial sector believe that it might have negative repercussions in the long run.

According to recent RBI data, Tamil Nadu accounts for around 20 per cent of all education loans availed in the country and a 2018 CARE rating report claims that Tamil Nadu and Kerala account for 36 per cent of loan defaults, clearly suggesting repayment of education loans is a problem that plagues the State.

It is estimated that the State would have to spend over Rs 17,000 crore to waive off all education loans. Financial experts claimed that a waiver is feasible considering bigger financial relaxations given to corporates but said it would set a bad precedent that will have effects in the long run.

“This amount is comparable to what just one celebrity loan defaulter taking refuge overseas owes but that doesn’t mean it should be waived,” said C H Venkatachalam, general secretary of the All India Bank Employees, claiming a blanket waiver would breed a notion that loans availed don’t have to be repaid.

“Trust will take a hit and banks will be apprehensive about lending the future,” he said, explaining that there must be a filter to identify the defaulters who are actually unable to repay the loans if such a waiver is introduced.

Economist Venkatesh Athreya, said there were both positives and negatives to an education loan waiver. “But an education loan waiver is definitely not a solution to the problem at hand. The government should work toward bringing the price of higher education down so students won’t be in this situation in the first place,” said Athreya, explaining how defaulting on education loans is an indicator of unemployment levels.

According to a reply by Minister of State for Finance Shiv Pratap Shukla at the Parliament in January, education loan defaulting is on the rise. The Non Performing Assets for Public Sector Banks (which account for 92 percent of all education loan lending) rose from 7.29 percent to 8.97 percent between March 31, 2016 and March 31, 2018 – a 1.68 percent increase in just two years.

While the DMK had promised an education loan waiver ahead of the 2016 assembly elections, the AIADMK has also sounded the education loan waiver trumpet. When questioned about the decision to recommend the centre to waive education loans at this juncture, a spokesperson for the party said – “We have just expressed our intention to waive education loans. The way it will be done will be decided only after deliberations with the central government.”

NPAs of Public Sector Banks in education category (India data) 

  • Medical Profession – 6.06 percent
  • Engineering – 9.76 percent
  • Nursing Courses – 21.28 percent
  • MBA – 5.59 percent
  • Other Profession – 9.49 percent