Catch them young. Students are surely investments for future business growth in the banking sector. State-owned banks are now increasingly looking at the commercial spin-offs of financing education while helping the government meet its goal of raising public spending in education.
Loans to finance education form a part of the priority sector lending for banks, which are also under pressure to improve their financial health . They are hoping to cash in on the loyalty factor to enlarge their customer base. With higher education becoming more expensive both in India and abroad, banks' exposure to education loans is on the rise though it may still not constitute a large chunk of their retail business.
Education loans account for around 6.1% of the total advances in seven districts of Western Maharashtra, according to M M K Rao, chief marketing executive, State Bank of India . Nearly six months ago, SBI raised the ceiling for loans to finance studies in India from Rs 7.5 lakh to Rs 10 lakhs. For students pursuing education abroad, the limit was upped from Rs 15 lakh to Rs 20 lakh. The ceiling for other banks is Rs 7.5 lakhs and Rs 15 lakhs, respectively.
Collateral security of suitable value or co-obligation of parents or guardians or a third party is needed for loans above Rs 4 lakhs. Banks cannot charge interest exceeding their PLR for loans upto Rs 4 lakhs. It is PLR plus 1% for loans above Rs 4 lakhs. Students don't have to pay a processing fee on their loan applications. The moratoroum on re-payment in most cases is the course period plus one year or six months after getting a job, whichever is earlier.
Of course, there are minor variations in the terms offered by various banks. Here's an indicative but not exhaustive list. The SBI, for instance, charges a yearly interest of 10.50% on loans upto Rs 4 lakh and 11.50% for loans above Rs 4 lakhs.
The repayment period to finance studies in India is 5-7 years for loans upto Rs 7.5 lakh and 5-10 years for loans above Rs 7.5 lakh. For a student pursuing studies abroad, the repayment period is 5-7 years for loans upto Rs 15 lakh and 5-10 years for loans above Rs 15 lakh. A deposit of Rs 5, 000 is re-quired for loans taken for studies abroad and this is adjusted in the margin money.
