Education Loan subsidy Scheme of Central Government

Government banks won't publish photos of education loan defaulters

(The directive comes at a…)

The directive comes at a time when the government has announced an interest subsidy scheme on unpaid education loans. In the interim budget announcement on Monday, the government said it will provide interest subsidy on outstanding education loans sanctioned before March 2009. The move will cost the exchequer Rs 2, 600 crore. "Most students are not wilful defaulters. A large section where loans have gone bad is mostly because of unemployment, " said an official.

Saddled with bad loans, nationalised banks have started publishing photographs and names of wilful defaulters in leading publications to speed up recovery in both the corporate and retail segments.

A move to legally challenge public identification of defaulters fell last November when the Bombay High Court refused to stop publication of photographs of a defaulter firm, saying it was in larger public interest. The court ruling prompted some banks, including the State Bank of India, the country's largest, to even publish names of some education loan defaulters.

"The same yardstick cannot be applied to all cases. The decision to publish names and photographs was to shame wilful defaulters and apply social pressure, " the official quoted earlier said.

Announcing the interest subsidy, finance minister P Chidambaram said the government will pay the outstanding interest till December 2013 on such loans. The scheme is expected to benefit close to 900, 000 students, he added. "It is a good step in the right direction.

Students will have a long relationship with banks, as they get a job and so forth. It does not make any sense to sour that relationship at a very early stage, " said MP Shorawala, an independent director at the Central Bank. So far, state-run banks have about 2, 60, 000 education loan accounts with a cumulative outstanding of Rs 58, 000 crore.

Earlier, the finance minister had asked banks to make a distinction between wilful defaulters and people who are genuinely stressed.

"The bulk of the people do not wilfully default. They default because of circumstances. Once the economy and cash flow pick up, they will pay, " he had said. Non-performing assets, or bad loans, of public sector banks rose 28.5% to Rs 2.36 lakh crore in September last year from Rs 1.83 lakh crore in March 2013.

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