Fraud on banks by defaults on educational loans

I have always argued in favour of liberal educational loans in India. So, I was delighted when I was given some details on this by an acquaintance in the banking sector. It is mind-blowing – if you have earned admission in a degree-granting program and have 60% marks in the Plus 2 exam, you can get an interest fee loan of Rs 4 lakhs to pay for your education. (If you are going to study for a professional degree, or going to study abroad,  you can borrow a lot more.) For details, visit http://www.canarabank.com/english/scripts/otherprioritysectorloans.aspx

I am sure that every public sector bank has a similar scheme; I chose the Canara Bank because it leads all the others (in alphabetical order)!

I don’t know the interest payable on the bigger loans, but I heard from my acquaintance that the interest payable on the 4 lakh loans is ZERO!  The government subsidy takes care of that.

This is the happiest news I have heard in years. What is the amount of bank credit extended through this route? I won’t tell you here – you might fall off the chair when you hear the huge number! Visit http://www.thehindubusinessline.com/industry-and-economy/banking/dont-reject-educational-loan-application-on-technical-grounds-rbi/article4081443.ece

I don’t complain about the large amount. There is no better way to help a society develop than to lend it money for education.  

But I ran into disturbing news when I probed further. About 25% of our grateful youth, after enjoying an interest free loan, decide that they do not have to pay back the principal of the loan either, according to my acquaintance. Some of them it seems have been heard saying that they can afford to pay; but so many of their friends have not paid, so why should they?

Who benefits by letting public sector banks bleed like this?  We know the predominant background of the netas who run educational institutions in the name of public charitable trusts!  But, how does RBI allow this? What is the quantum of money being looted by educational loan defaulters?

The bankers will, no doubt, have their excuses – no collateral, no effective surety in most cases, the scheme is meant to benefit the poor and the youth, etc. Besides, anyway it is not your money!

Why should we worry? Because, if we recover the money due, we can spend more on real education. If we do not do something about this problem, we would continue to teach every graduate that government subsidies can be easily looted by dishonest elements.  At the national level, sloppy banking practices can bring a nation down on its knees. Look at what happened to Greece and Cyprus even without loan defaults. 

There is a way to tighten up on all this, if there is a will. Demand that loan applicants have either an Aadhaar card or a passport to qualify for the loan. Ensure that the defaults are properly reported to the credit information system. Defaulters should be disqualified for access to credit cards, bank accounts etc. The defaulters should also be prevented from using their passports for leaving the country.

Srinivasan Ramani