education loans by commercial banks in india
TRANSCRIPT
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TABLE OF CONTENT
1. CERTIFICATE 2
2. ACKNOWLEDGEMENT 3
3. PREFACE 4
4. EXECUTIVE SUMMARY 6
5. CHAPTER 1 INTRODUCTION 7
6. CHAPTER 2 EDUCATION LOAN 11
7. CHAPTER 3 EDUCATION LOAN INDUSTRY 17
8. CHAPTER 4 THEORETICAL FRAMEWORK 42
9. CHAPTER 5 LITERATURE REVIEW 51
10.CHAPTER 6 RESEARCH METHODOLOGY 65
11.CHAPTER 7 DATA ANALYSIS 72
12.CHAPTER 8 FINDING AND CONCLUSION 97
13.CHAPTER 9 LIMITATION 103
14.BIBLIOGRAPHY 10515.ANNNEXURE 107
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EXECUTIVE SUMMARY
India is home of 16% of the worlds population accommodated in an area of 2.42% of
worlds total land area. India spends nearly 3.8% of its GNP on education and has 46% of its
population aged 15 years and above as illiterates while China which is the worlds most
populous country spends 2.6% of its GNP on education and has only 22% of its population
aged 15 years and above as illiterates.
The problem of illiteracy in India is due to the unavailability of funds for studies. Most
parents are unable to provide higher education to their brilliant children because of paucity of
funds.
In such scenario educational loans is a relief. These loans are gives by most banks at nominal
rates of interest with comfortable repayment schedules.
Educational loan schemes available at the nationalized banks can play an important role in
bringing the higher education within reach of the poor and middle class families. The need
for raising the satisfaction level of the beneficiaries of these Schemes assumes special
significance in the present context. Through this study the need is to identify what are the
expectations of customers out of these schemes how much banks are successful in satisfying
them.
This study has given an insight into the educational loan schemes offered by banks in India.
It has also helped to know how various procedures to acquire these loans and above all to
find out if the beneficiaries are satisfied with the scheme i.e. to examine the eligibility
conditions, formalities and procedure followed for sanctioning the loans by banks .An insight
is also provided as to what are the expectations of the beneficiaries and to assess whether
they are satisfied with the operation of the educational loan schemes. Finally the objective is
to identify what are the gaps in customer expectations and services offered by bank.
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RATIONALE
There has been a phenomenal growth in higher educational institutions in the country since
Independence. One of the important gains of Independence in India was that it could develop
the necessary infrastructure for providing education to the people right up to university level
in reasonably short period of time. More significant aspect of this development is the fact
that cost of education has been sufficiently low with the result that even the poor families
could afford to educate their children adequately. The Central Government and almost all
the State Governments had instituted a number of scholarships and fellowships, which
became available to meritorious students and enabled them to continue their higher studies.
In course of time, the cost of education started rising. The Central Government announced in
1963-1964 a modest scheme of National Loan Scholarships, which remained in operation for
about 25 years. This Scheme however did not serve the purpose because it sought to cover a
very large segment of educational sector beginning with higher secondary stage. The amount
provided to a scholar under the Scheme was inadequate (Rs.50-150 per month) and the
recoveries were very poor. Later, the Central Government introduced a number of loan
schemes for educational courses through leading nationalized banks. Some private
organizations also came forward with similar schemes to enable the needy students to
continue their education. However, over a period of time, with rise in fees and living
expenses the higher and technical education no longer remained within the reach of the poor
and even middle class families.
Since the benefits of scholarships, fellowships etc. provided by the Government and private
organizations is restricted only to a limited number of meritorious students, the facility of
educational loans provided by the leading nationalized banks assumes special significance.
However there is general feeling that the beneficiaries of educational loans have to complete
a large number of formalities, some of which are rather harsh for the poor people and their
inability to comply with the requirements of the banks defeats the very purpose of the
Scheme.
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Educational loan schemes available at the nationalized banks, can play an important role in
bringing the higher education within reach of the poor and middle class families. The need
for raising the satisfaction level of the beneficiaries of these Schemes assumes special
significance in the present context. Through this study the need is to identify what are the
expectations of customers out of these schemes how much banks are successful in satisfying
them .
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OBJECTIVE
MAJOR OBJECTIVE: To perform a gap analysis of the education loans provided by banks
in India.
SUB OBJECTIVES
i) To examine the eligibility conditions , formalities and procedure followed for
sanctioning the loans by banks
ii) To identify what are the expectations of the beneficiaries and to assess whether they
are satisfied with the operation of the educational loan schemes
iii) To identify what are the gaps in customer expectations and services offered by bank.
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Educational Loan Scheme
The Reserve Bank of India has evolved an educational loan scheme to facilitate financial
assistance to students seeking admission to private professional colleges to pursue the full
time graduate/post-graduate courses. The scheme is effective from August 1,1999. All public
sector banks have been directed by RBI to provide educational loans to students who fulfill
certain eligibility criteria.
RBI has identified following disciplines:
i. Medical and dental (all branches such as allopathy, ayurvedic, homoeopathy)
ii. Engineering
iii. Chemical technology
iv. Management
v. Architecture including interior decoration
vi. Law
vii. Computer science and applications
Government of India in consultation with Reserve Bank of India (RBI) and Indian Banker's
Association (IBA) has framed a Comprehensive Educational Loan Scheme to ensure that no
deserving student in the Country is deprived of higher education for want of finances. The
new scheme covers all type of courses including professional courses in schools and colleges
in India and abroad.
The Salient features of the scheme are as under:
The scheme envisages loans up to Rs.7.5 lakh for studies in India and up to Rs. 15
lakh for studies abroad.
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For loans up to Rs. 4 lakh no collateral or margin is required and the interest rate is
not to exceed the Prime Lending Rates (PLR). For loans above Rs. 4 lakh the interest
rate will not exceed PLR plus 1 percent.
The loans are to be repaid over a period of 5 to 7 years with provision of grace period
of one year after completion of studies
Under the model IBA scheme (revised) implemented by the Ministry of Finance, there is no
margin and collateral security requirement on loans below Rs 4 lakh.
For loans above Rs 4 lakh, the margin requirement is 15 per cent for inland studies and 25
per cent for studies abroad. Scholarships and assistanceships are permitted to be included in
the margin. Further, margin money is not a one-time requirement. It can be brought in on a
year-to-year basis as and when disbursements are made on a pro-rata basis.
The collateral security requirement for loans of Rs 2 lakh and above is Rs 100 per cent of the
loan amount. Guarantee of a third person known to the bank for an equivalent value is
acceptable under the scheme. In case where the eligible collateral security like land or
building is already mortgaged, the unencumbered portion is acceptable as security on a
second charge basis, provided it covers the loan amount.
Eligibility criteria:
(i) Student should have secured admission in private professional college
against either free/merit or payment seat. Student will have to submit a certificate to this
effect from the principal / competent authority of the college concerned. The college should
be affiliated to a university in the country and the course should be recognized by the
concerned governing body, such as, Indian Medical Council,etc.
(ii) Student's annual family income (or that of his father or guardian) should not exceed Rs.1
lakh from all sources. An affidavit to this effect will have to be furnished by the student and
his father and in the absence of the father, by mother or other near relative.
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(iii) Students who have secured admission against quota of seats meant for NRI/foreign
students will not be eligible for assistance under the scheme.
Loan amount: Rs. 15,000 for free/merit seat student and Rs.50,000/- for payment seat
students, or the fees payable by the student, whichever is less.
Interest: The interest rates on these loans are usually on a floating basis. They are linked to
the lending rates of the bank and are called PLR or Prime Lending Rate. Normally, interest
on loans up to Rs 4 lakh is the same as the PLR; some banks offer half or quarter percentage
points lower than the PLR. Loans above Rs 4 lakh attract interest rates that are 50 or 100
basis points above the bank's PLR.
During the moratorium period, simple interest is computed. On commencement of the
repayment, compound interest is charged on the total outstanding balance (principal plus
accrued interest) in the loan account. Accrued interest gets added to the principal amount and
Equated Monthly Installments (EMIs) are fixed on the total outstanding amount.
Security: Earlier loans up to Rs 4 lakh required collateral security. Now, however, only
loans above Rs 4 lakh require tangible collateral, security for full value of the loan or thirdparty guarantee, depending on the amount. However, the co-borrower, who in most of cases
is the parent or guardian of the student, is required to furnish his bank account statement, tax
returns of the last two years, statement of assets and liabilities and proof of income.
The margin requirements on education loans are not very rigid. It is 5 per cent for inland
studies and 15 per cent for studies abroad for amounts exceeding Rs 4 lakh. The margin
money is calculated from time-to-time on the outstanding balance of the loan. You will be
required to bring in this margin money on a year-to-year basis, as and when the
disbursements are made on a pro-rata basis.
Repayment: Repayment of the loan will commence immediately after two years of
completion of the course the student is studying in or six months after the student borrower
has secured employment and starts earning, whichever is earlier. The total period for
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repayment including the above period of two years or six months, as the case may be, should
not exceed five years from the date of completion of the course by the student.
A bond undertaking to repay the loan amount in the stipulated manner will have to be
executed by the student and in case the student is minor, by his father/mother or the guardian.
Student will have to submit a certificate every year from the college authorities regarding
fees payable by him. Loan amount will be remitted by the lending bank to the college
concerned. Loan granted in each academic year may be treated as a separate loan account for
determining rate of interest, security, etc.
The assistance from the bank should be available to the student for the entire duration of the
course. The student will not be required to submit a fresh application for loan every year but
will only submit to the bank proof of his continuing to fulfill the eligibility criteria.
However the objective of the scheme to provide financial assistance by way of loans to the
meritorious and indigent students in order to encourage them to pursue the full time
graduate/post- graduate professional courses in private professional colleges for developing
the technical skills will be fulfilled only if the banks implement it properly.
Tax Benefit
Repayment of an education loan is deductible under section 80E of the Income Tax Act. The
yearly limit for deduction is Rs. 40,000 (for both the principal and the interest). Only loans
taken for higher education - fulltime studies in any graduate or post-graduate, professional,
and pure and applied science courses - may claim deduction. The deduction will be available
for a maximum of eight years starting from the day you start repaying.
Equitable Access to quality higher education has been a concern of the University Grants
Commission. To this purpose the Commission, besides encouraging colleges and universities
to provide for liberal financial support to the meritorious but needy students, has also been
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instrumental in educational loan scheme. The Reserve Bank of India (RBI) has issued
guidelines in this regard to all commercial banks. A large number of banks have already
launched educational loan schemes.
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Education Scenario in India
India is home to 17% of the Worlds total population accommodated in an area which is
2.4% of the Worlds total area. As against 2820 languages in the entire world, as many as
325 languages are effectively used in India alone. Local dialects change in India almost after
every 8-10 Kms. The country has witnessed phenomenal educational development both in
quantitative and qualitative terms, since independence. However, the national goals of
universal elementary education and total eradication of illiteracy have still remained elusive.
The Government is committed to achieving these national goals and has been steadily
increasing the budgetary allocation for education. The country has also made significant
strides in higher and technical education.
India spent 4.02% of its GDP on education during 2001-2002 but about 44% of its adult
population still remains to be made literate. Statement-1 compares the population, area,
density, literacy rates and level of public expenditure on education in India and some of its
neighburing countries. Afghanistan with 63.75% adult illiterates is at the top, closely
followed by Bangladesh, Nepal and Pakistan.
POPULATION, AREA, DENSITY, LITERACY & PUBLIC EXPENDITURE IN
INDIA AND SOME NEIGHBOURING COUNTRIES
Particulars Populat
ion
(millions)
(2000)
Area
(Sq. Kms)
Density Percentage
to world
Percentage
of adult
illiterate
Population
2000
Public expr.
on education
as %age of
GNP (1996)
World 6055.0 * 135604354 45 100 100 20.6 NA
Afghanistan 21.2 # 652090 33 0.48 0.35 63.7 N.A.
Bangladesh 129.2 143998 897 0.11 2.13 59.2 2.2
China 1277.6 9596961 133 7.08 21.10 15.0 2.3
India 1027 $ 3287590 312 2.42 16.96 44.2 3.2
Indonesia 212.1 1904569 111 1.40 3.50 13.0 1.4
Japan 126.9 377801 336 0.28 2.10 NA 3.6
Myanmar 46.4 676578 69 0.50 0.77 15.3 1.2 &
Nepal 22.5 # 140797 160 0.10 0.37 58.6 3.2 @
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Pakistan 156.5 796095 197 0.59 2.58 56.7 2.7 @
Sri Lanka 18.8 # 65610 286 0.05 0.31 8.4 3.4
Thailand 62.0 # 513115 121 0.38 1.02 4.4 4.8
SOURCE: Statistical Yearbook, 1999 UNESCO
* Estimated population for 2000, # Reference year 1999, $ Reference year 2001
& Reference year 1994, @ Reference year 1997
Note: The area figures of India exclude area under illegal occupation of Pakistan and China.
Expenditure on Education:
Public expenditure on education:
The expenditure on the education sector was slightly less than 1% of the GDP in 1951-52.
The percentage expenditure to GDP shows an irregular rise and fall. It rose to 2.33% in 1972-
73 but in 1973-74 declined to 2.15%. It increased to 3.07% in 1979-80 and decreased to
2.83% in 1981-82. Continuing to rise and fall slightly, it has reached a level of 4.02% in
2001-2002. Similarly, the percentage of expenditure on education and training to total
expenditure of all sectors during the last five decades indicates that it has increased from
7.92% in 1951-52 to 13.17% in 2001-2002 i.e. by 5.25 percentage points during the last five
decades. This translates to an annual average growth of 0.11% during the period 1951-52 to
2001-2002.
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Public Expenditure on Education in India (In crore)
Year
Govt.
expenditure on
education (Trg.
& Rev) by
education and
other Deptts.
(center+state)
Total Govt.
expenditure on
all sectors (Rev)
GDP at current
prices(at factor cost)
base year 1993-94
% of Expenditure on
Education toExpenditure on all
sectors
%
EducationExpenditur
to GDP
1951-52 64.46 814.13 10080 7.92 0.64
1952-53 72.26 857.67 9941 8.43 0.73
1953-54 80.06 908.20 10824 8.82 0.74
1954-55 95.82 973.74 10168 9.84 0.94
1955-56 118.39 1111.26 10332 10.65 1.15
1956-57 132.88 1158.01 12334 11.47 1.08
1957-58 150.26 1416.62 12610 10.61 1.19
1958-59 173.78 1594.36 14106 10.90 1.23
1959-60 207.59 1770.06 14816 11.73 1.40
1960-61 239.56 1997.93 16220 11.99 1.48
1961-62 260.30 2225.40 17116 11.70 1.52
1962-63 278.76 2942.67 18302 9.47 1.52
1963-64 313.93 3488.97 20916 9.00 1.50
1964-65 369.29 3844.91 24436 9.60 1.51
1965-66 432.61 4404.82 25586 9.82 1.69
1966-67 487.83 5100.24 29123 9.56 1.681967-68 593.14 5619.77 34225 10.55 1.73
1968-69 649.13 6922.07 36092 9.38 1.80
1969-70 760.23 7908.07 39691 9.61 1.92
1970-71 892.36 8787.12 42222 10.16 2.11
1971-72 1011.07 10610.89 44923 9.53 2.25
1972-73 1150.43 11863.56 49415 9.70 2.33
1973-74 1300.72 12884.48 60560 10.10 2.15
1974-75 1570.67 14625.03 71283 10.74 2.20
1975-76 1849.47 17958.99 75709 10.30 2.44
1976-77 2039.09 20482.83 81381 9.96 2.511977-78 2630.60 22666.31 92881 11.61 2.83
1978-79 2994.69 26134.84 99823 11.46 3.00
1979-80 3347.57 30915.39 108927 10.83 3.07
1980-81 3884.20 36398.39 130178 10.67 2.98
1981-82 4435.29 33667.31 152056 13.17 2.92
1982-83 5509.17 43996.18 169525 12.52 3.25
1983-84 6229.53 61889.25 198630 10.07 3.14
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Expenditure By Level of Education :
The expenditure on elementary education was 1.78% to the GDP in 1990-91. The percentage
expenditure on elementary to GDP shows a gradual fall to 1.65% in 1994-95 and than shows
a gradual rise to 2.02% in 2001-02. The percentage expenditure to GDP on secondary/higher
secondary shows an irregular rise and fall and it has remained between 1.13 to 1.44 percent
during 1997- 98 to 1999-2000. The percentage expenditure to GDP on Adult Education was
0.05% during 1990-91 showing a gradual decrease to 0.01% in 2000-2001. It improved
slightly to 0.02% during 2001-2002. The percentage expenditure on University and Higher
Education to GDP, which was 0.77 % in 1990-91 shows a gradual decrease to 0.62% during
1997-98 and rises to 0.88% in 2000-2001.
The share of expenditure on Elementary Education to total expenditure on all sectors was
6.19% during 1990-91 and which shows irregular rise and fall and finally settled at 6.61%
during 2001-2002. The share of Secondary and Higher Secondary Education to total
expenditure on all sectors was highest in 1999-2000 i.e. 4.97% and the lowest (4.09%) during
2001-2002. The share of adult expenditure in total expenditure on all sectors was highest in
1990-91 (0.19%) and shows a gradual decreasing trend to 0.05% in 2001-02. The percentage
share of higher education to total expenditure remained between 2.32% to 2.96% in the last
decade.
Budgeted expenditure (Revenue Account) on Education
The per capita budgeted expenditure during 2001-02 was highest in Lakshwadweep
(Rs.3439.11) followed by Sikkim (Rs.2435.98), A&N Islands (Rs.2371.23) and lowest in
Bihar (Rs.386.45) followed by Uttar Pradesh (Rs.465.20) and Orissa (Rs.500.39). The
percentage of Budgeted expenditure on education to the total State Budget was highest in
Assam (31.36%) followed by Madhya Pradesh (30.18%) and Maharashtra (25.88%).
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AVAILABILITY OF EDUCATIONAL LOAN SCHEMES AT BANKS
Educational loan schemes available at the nationalized banks, can play an important role in
bringing the higher education within reach of the poor and middle class families. The need
for raising the satisfaction level of the beneficiaries of these Schemes assumes special
significance in the present context.
Unfortunately, educational loans constitute an insignificant component of the loan portfolio
of almost all commercial banks, both in the public and private sectors. Over the years there
has been a tremendous growth in the number of students, courses and institutions in higher
professional and technical education in the country, but the market for educational loans
remains stagnant.
This should be surprising as the banks are flush with loanable funds and their overall credit
offtake is low in the present recessionary circumstances. The RBI already circulated an
educational loan scheme for commercial banks in July, 1999. Later, the Indian Banks
Association (IBA) formulated a separate and additional scheme, which was adopted by the
government with certain modifications and announced in the Union Budget 2001-02. The
purpose of the scheme is to provide support from the banking system to deserving and
meritorious students in the pursuit of higher education.
The moot question is why is the educational loan market insignificant in spite of the high
pressure of demand for higher education, sufficient availability of bank funds and existence
of a well-defined policy for educational loans.
Factors responsible for the situation fall both on the demand and supply sides. A large
number of banks under the instructions and guidance of the RBI and the Ministry and
Finance have floated educational loan schemes, but awareness of the same in the public is
low, due mainly to poor publicity and advertising. Even among those who are aware of the
existence of the schemes, there is little knowledge about course and student eligibility,
expenses covered, loan quantum, margin money and collateral requirements.
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There is a widely held belief that such loans are expensive and procedurally complex to
obtain. Equally, there is little awareness about the tax advantage associated with the
repayment of the loan. Section 80-E of the Income Tax Act, 1961, contains a provision for
availing deduction on the total income on account of educational loans for the purpose of
computing taxable income, provided the loan is in the name of the assessee.
On the supply side, there is considerable indifference on the part of the banks to make such
loans. A number of branch managers particularly in public sector banks, view such loans as
potential NPAs (non-performing assets) due to liberal margin and security requirements.
Under the model IBA scheme (revised) implemented by the Ministry of Finance, there is no
margin and collateral security requirement on loans below Rs 4 lakh.
For loans above Rs 4 lakh, the margin requirement is 15 per cent for inland studies and 25
per cent for studies abroad. Scholarships and assistanceships are permitted to be included in
the margin. Further, margin money is not a one-time requirement. It can be brought in on a
year-to-year basis as and when disbursements are made on a pro-rata basis.
The collateral security requirement for loans of Rs 2 lakh and above is Rs 100 per cent of the
loan amount. Guarantee of a third person known to the bank for an equivalent value is
acceptable under the scheme. In case where the eligible collateral security like land or
building is already mortgaged, the unencumbered portion is acceptable as security on a
second charge basis, provided it covers the loan amount.
Another reason for the banks lack of enthusiasm in the long-term character of the loans.
Now that the specter of NPAs haunts bank managers, they are inclined to attach a high
degree of risk to such loans which involve a repayment holiday or moratorium of the entire
course period (with provision of extension of two years) plus one year as the waiting period
for employment.
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The loan is repayable in five to seven years after employment is obtained. Thus, a bank will
have to wait for at least 10 (4+5+1) years before a loan granted to an engineering student at
the entry point is fully paid back.
For a five-year masters degree programme, the maximum waiting period can go upto 15
(5+7+2+1) years with extension. Over such long periods, bank managers fear that the
liability-holder may vanish, die, or get financially incapacitated or bankrupt. Such situations
can drag the bank into litigation.
Higher professional educational financing has to be a priority area of national importance as
it affords an opportunity to deserving students to acquire and develop skills, which are
important for national development.
Objective of the schemes
Nothing can be more frustrating for a parent than not being able to arrange for adequate
financial resources to meet the cost of professional courses.
Everyone wants to provide the best education to his children. The cost of higher and
professional education is high. These costs include tuition fees, cost of books, boarding and
lodging, travelling, and other incidental expenses.
However, as with other things, now there are solutions available. Most of the banks give
education loans. Students wanting to avail education loans need to approach these banks.
Once selected to a good institution, there is no dearth of lenders. Education loan schemes are
very flexible and allow one to take long-term loans for all kinds of courses offered by
recognised schools, colleges and institutions, including part-time and correspondencecourses.
Loans are also available for studies abroad. One can take a loan to study in recognised
schools, colleges and institutions. It is meant to meet expenditures on tuition fees,
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maintenance costs, books and equipment, cost of passage (for studies abroad), security
deposits /refundable deposits, boarding and lodging etc.
The loans are available to Indian nationals who have secured admission to professional or
technical courses through an entrance test or selection process, or have secured admission to
a foreign university or institution.
The loan amount depends on the need and is subject to the repaying capacity of the
parents/students. Usually, for studies in India the maximum amount financed is Rs 7.50
lakhs. For studies abroad the maximum amount financed is Rs 15 lakhs.
{ Source: Article by Ashish Gupta, Times News Network, Friday 20th August 2004. }
Interest Rates
Most banks give loans from Rs 2.5 lakh to Rs 10.5 lakh, depending on the duration of the
course and the stream chosen. The interest rates charged on these loans vary from 10 to 12.5
per-cent. The rates of interest range from 11.5% (Bank of Baroda) and 12% (State Bank) to
12.25% (Canara Bank, Bank of India) and 12.5% (Central Bank of India, United Bank of
India), depending on the loan amount and term. Private trusts like J.N.Tata Endowment also
give education loan scholarships for studies abroad. For these schemes, you need to have an
excellent academic record and satisfy an interview panel made up of leading experts and
academics.
Bank of Maharashtra in an attempt to rope in customers early with an educational loan, and
then offer benefits along the way has tied up with a Pune based professional educational
institutions where education loans are being offered. These institutes have offered to take on
the interest burden so that the students get interest free loan.
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{ source: Article by: Gouri Agtey Athale, Times News Network, Thursday, September
16,2004 }
In the budget for 2004-05, Finance Minister P Chidambaram proposed modification of the
earlier scheme to enable students to get education loans up to Rs 4.0 lakh at prime lending
rates (10-11 per cent) without any collateral for professional courses, such as the ones at IITs,
IIMs and government medical colleges.
As a result of this measure education loans almost doubled to Rs 1,994.88 crore in 2002-03
after giving loans to 1.41 lakh students.
About 88,614 students took loans totaling Rs 1,032.74 crore in 2001-02 as against 44,694
students getting Rs 667.60 crore in 2000-01. For loans above Rs 7.5 lakh, a student has to
furnish collateral of suitable value or co-obligation of parents or guardians along with the
assignment of his/her future income for payment of installments.
Generally, banks provide a moratorium period after which the recovery starts. Some banks
charge a nominal processing or administrative fee. However, many banks have waived off
these charge. The repayment period is long and ranges from five to seven years.
It commences from one year after the course period or six months after getting a job,
whichever is earlier. The outstanding interest for the moratorium period is added to the loan
amount at the time of commencement of re-payment.
{ source: PTI, Sunday, 8th August 2004 }
Other Charges
Margin money and processing charges are what you need to keep an eye on when you
approach any institution for a loan. Margin money is a certain percentage of the loan amount
that is retained by the banks for developmental purposes. While Punjab National Bank and
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Allahabad Bank do not charge any margin money, others like Syndicate Bank and Union
Bank charge margin money of up to 25%.
As far as processing charges are concerned, banks like ICICI Bank charge a flat 2% while
others like Corporation Bank charge Rs 100 on every Rs 1 lakh. So do compare the various
options before you decide to take that loan.
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LOAN SANCTIONING PROCEDURE
The procedure followed by the banks for sanctioning educational loan involves the following
main stages :
1. Preliminary Inquiry About Loan
Usually the applicant makes his first visit to the bank for certain preliminary inquiries about
the availability of educational loan from the Bank. At this stage, he seeks all the relevant
information, pamphlets, literature, application form etc. for making a formal application to
the bank for obtaining educational loan.
The Bank Manager or the Credit Officer also makes certain inquiries from the applicant
about the intended course of education, duration of the course, academic career of the
borrower after Class X, his financial circumstances, family background, profession of father,
total expenditure involved, financial assistance required etc. Most often the total expenditure
involved in pursuing educational course is much more than the loan applied from the bank.
In such cases, the borrower is asked to explain how he plans to meet the gap. The Branch
Manager also makes as assessment of the repaying capacity of the father of the applicant and
employment prospects of the applicant after completion of the course. After the loan amount
is decided, the branch manager advises the borrower about the security requirements and the
nature of securities acceptable to the Bank. The borrower is advised to submit his formal
application complete in all respects, together with necessary documents relating to the
security requirements.
2. Submission of Application to the Bank
The borrower submits his formal application to the bank and the branch manager examines it
to make sure that the application has all the relevant supporting documents enclosed with it.
The borrower is advised to contact the bank after one or two weeks to check up the status of
the application.
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3. Scrutiny of the application form and security documents
At this stage, the concerned officer in the bank scrutinizes the application form and examines
all the documents relating to security requirements. An attempt is made to ensure that the
application contains complete information and that the applicant is fully eligible under the
educational loan scheme. Documents relating to the security of the loan amount are also
scrutinized. In case mortgage of Immovable property is involved, the relevant documents are
scrutinized by, the Legal Cell of the Bank. After scrutiny of the papers, the Legal Cell gives
their clearance to the concerned Credit Officer for further necessary action.
4. Submission of Papers to the Branch Manager
After the scrutiny of the application form and other documents, the Credit Officer puts up the
papers for obtaining sanction of the competent authority for educational loan to the applicant.
Depending upon the loan amount, necessary sanction is accorded by the Branch Manager or
the higher authority.
The Study Team observed that normally the delay occurs when the proposal is sent to the
higher authority or it involves scrutiny of the documents by the Legal Cell in the case of
mortgage of immovable property.
5. Issue of Sanction by the Bank
After the loan is sanctioned by the competent authority, the applicant is informed about the
sanction and the manner in which the loan is required to be repaid.
6. Disbursement of Loan
Normally, the loan amount is disbursed in installments as and when the demands are, made
by the educational institutions. As far as possible, the loan amounts, are disbursed directly to
the educational institution. Mostly the banks demand progress reports from the educational
institutions to ensure proper utilization of the loan.
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instruments required by the student for that course. For studies abroad, banks may provide
one-way air fare. But this needs to be checked with your individual bank.
You can use an education loan to finance a range of expenses, apart from tuition fees. They
include:
Fee payable to college, school or hostel.
Examination, library, laboratory fee.
Purchase of books, equipment, instruments, uniforms.
Caution deposit, building fund, refundable deposit supported by institution
bills, receipt.
Travel expenses for studies abroad.
Purchase of computers essential for completion of the course.
Any other expense required towards the completion of the course such as
study tours, project work and thesis.
Who is eligible for an educational loan
There are many criteria that determine the eligibility of a student for an educational loan.These vary greatly from bank to bank. The most important criterion is that the student must
have qualified for, or have a confirmed admission in a college or institute. The other factors
that are normally important with nationalized banks are the age band, i.e. the student
applying for the loan must be in the age group of 16-26 or some such specified range. Other
criteria are good academic record (first class throughout, with no gaps or breaks in education,
etc.), and a regular source of income for the parents. The recognition granted to the
institution the student has opted for is also an important criterion.
What is the maximum amount that can be availed under educational loans? / How is
the maximum loan amount calculated
The maximum loan amount varies from bank to bank, but, most importantly, it depends on
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for studies overseas, the amount is given directly to the airlines. Some banks do give the
students themselves a certain amount on a monthly or quarterly basis for purchasing books,
equipments and other related material associated with the course. This, again, depends on the
discretion of the bank.
Why do banks require an insurance policy
When the loan amount is greater than a lakh, banks usually prefer students to have Life
Insurance Corporation (LIC) policies equivalent to, or more than, the loan amount. This is
nothing more than a security feature that also forms a part of your collateral. In case the
student is not able to pay back the loan, the bank does not lose money on it and can recover
the outstanding amount from the student's LIC policy.
Why does the repayment of education loans taken for school/high school/graduation
studies start immediately
In the case of educational loans taken for school/high school/graduation courses, the student
is not the borrower; his/her parents or guardians are. And since it is assumed that they have a
steady source of income, the loan repayment can start immediately without any holiday
period. Hence the repayment starts immediately.
Is there any special privilege for students in the Scheduled Caste/Scheduled Tribe
(SC/ST) category who avail of educational loans
Yes, special privileges, in terms of eligibility and margin money, are given to Scheduled
Caste/Scheduled Tribe students availing educational loans. The eligibility criteria are
lowered from first/second class to pass class for SC/ST category students. Further, the
margin money for them is sometimes nil or lower than the normal amount. Only nationalized
banks offer these privileges to SC/ST students, and not private or foreign banks. Even with
nationalized banks, one needs to properly check out these privileges beforehand.
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When can one apply for a loan
One major criterion that banks seek is confirmed admission. So, once the student has secured
a confirmed admission in an institute, along with a break-up of fees and other related issues
from the college, he/she can approach a bank for an educational loan.
A good academic record is essential, but not compulsory. A lot depends on one's relations
with the bank, and the bank has a sole discretion over the disbursement of the loan. Also, a
lot depends on whether one is able to provide the collateral required by the bank. If both of
the above factors are in favour of the person he could be the lucky one to get an educational
loan from the bank for further studies.
Why are guarantors required
Guarantors are essential for sanctioning of loans. Usually, a guarantor is required so that if
the applicant fails or becomes incapable of repaying, the guarantor will be responsible for
clearing the debt. Usually, a guarantor so chosen is a person with a net worth (i.e., annual
income) equivalent to, or more than, the loan amount.
What is the margin amount and how is it calculated
A margin amount is the amount that the applicant pays through his/her pocket. A bank can
either pay 100 per cent of the cost of studies or a certain percentage of the total cost. The
margin is usually the amount not covered by the bank for the payment of the essential and
necessary fees to the college/institution. Consider an example: Bank XYZ offers a loan for an
M.B.A. course, and the margin is 10 per cent. Here, 90 per cent of the cost of the course will
be borne by the bank and the balance 10 per cent has to be borne by the student/applicant.
Is the student's age a major consideration while applying for an educational loan
This again depends on the bank and its discretion. Quite a few of the nationalized banks
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follow the criterion of sanctioning loans to students falling in a particular age group, e.g. 15-
25 years. But this is not so with private and foreign banks. It is always safe to check with
your bank first for all the details regarding eligibility.
Will air travel fare be given by the bank as part of the educational loan
That depends on the bank concerned. Some banks provide for air fare, applicable only once,
and one-way, at the time of joining the course. This is given to students going abroad for
further studies, and is not applicable for students going for domestic studies. The money for
the one-way fare is given directly to the airline concerned, and not to the applicant.
Is it necessary to have an account with the bank to avail of an educational loan
Initially, this used to be important criterion with nationalized banks. Now, however, with
more relaxed norms, it is not mandatory to have an account. However, if one does have an
account with that particular bank, it becomes easier to get the loan sanctioned. This is
because the bank can examine your past financial records and transactions, and make a
decision quickly.
What do banks mean by `recognized' and `reputed' institutions
`Recognized' institutes refer to those that are affiliated to the State/Central universities and
come under the Central government's University Grants Commission (UGC) programs or the
All India Council on Technical Education (AICTE). The majority of the colleges fall within
the ambit of the UGC and AICTE. `Reputed' institutes are those that are pretty well-known
and have standard courses of repute. The definition of `reputed' institutions might vary with
banks, which usually have a list of colleges and institutions that they consider reputed.
Hence, you need to check with the bank whether it will finance courses run by that particular
college/institute.
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What Income Tax (IT) relief's can be claimed for repayment of educational loans
Under Section 80 E of the IT Act, a deduction will be allowed in respect of repayment of
loan taken for higher education, subject to the following conditions: In computing the total
income of an assessee, being an individual, these shall be deducted, in accordance with, and
subject to, the provisions of this section: any amount paid by him in the previous year, out of
his income chargeable to tax, by way of repayment of loan, taken by him from any financial
institution or any approved charitable institution for the purpose of pursuing his/her higher
education, or interest on such loan, provided that the amount that may be so deducted shall
not exceed Rs 25,000. The deduction specified above shall be allowed in computing the total
income in respect of the initial assessment year and seven assessment years immediately
succeeding the initial assessment year or untill the loan referred to above, together with the
interest thereon, is paid by the assessee in full, whichever is earlier.
Can educational loans be availed for part-time courses/distance-learning programs
(correspondence courses)
Most of the banks prefer not giving loans for part-time or correspondence courses, but
ultimately it all depends on the bank's discretion and your relation with the bank. Since
eligibility criteria are relaxed for these types of courses, and the chances of getting a good job
after such courses are generally bleak, and also assuming that the applicant would be already
working somewhere, banks prefer to stay away from financing these kinds of courses. But
there are banks like the State Bank of India that provide students' loans for part-time and
correspondence courses.
What is an interest portion and EMI
The interest portion is the amount paid by the student during the time of his course that starts
immediately from the month following the loan disbursal. During the tenure of his course,
he/she keeps paying interest to the bank, whereas the main principal is only paid at the end of
the holiday period. EMI or Equated Monthly Installment` is the amount payable by the
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student after the end of the holiday period that includes a certain portion of interest and
principal. EMIs are calculated on a quarterly reducing basis.
Can a minor avail of an educational loan
No, a minor cannot avail of an educational loan. But his parents/guardians who satisfy the
eligibility criteria can do so. Banks assess the individual's repaying capacity at the time of
disbursing the loan, and, hence, minors are ineligible for educational loans
Is there a penalty for pre-payment
That depends on the bank. Nationalized banks do not have any pre-payment charges, but
private and foreign banks usually charge a penalty, which usually ranges from 0.25 per cent
to 2 per cent of the outstanding loan amount.
What are the incentives for early repayment
Banks offer incentives to start repayment during the moratorium period. For example, SBI
gives you a concession of one per cent on the interest outstanding, if you pay the entire
interest amount when it falls due during the moratorium period. Also, if you pay 0.5 per cent
of the principal amount every month, you get half a percentage point concession on the
outstanding principal amount.
Allahabad Bank offers one per cent concession on the interest factor alone, while Canara
Bank offers 0.5 per cent.
Unlike other loans, education loans do not attract pre-payment penalty. If you find yourself
able in the early years of your career, you can pay off the entire outstanding loan amount.
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Can we switch
There are no reset options when it comes to education loans. These loans are based on
floating rates and you do not have a fixed rate option to switch to. But you can transfer your
loan from one bank to another, if you find a more attractive offer.
Normally, one per cent of the outstanding loan amount is charged to the borrower in the case
of a take-over. However, you need to clearly work out the savings by the lower interest rate
and compare with the switching cost and decide whether to switch.
Are there any special packages offered
Most nationalised banks offer education loans, while private sector banks usually do not.Allahabad Bank, SBI, Canara Bank, Central Bank of India, Corporation Bank, Syndicate
Bank, Oriental Bank of Commerce, Bank of India, Bank of Baroda, Andhra Bank are very
active in this segment.
Banks also tie-up with educational institutes to offer comprehensive loan packages to
students. This saves students some of the procedural hassles involved with getting the loan
sanctioned.
SBI has tie-ups with the Indian Institutes of Technology (IITs) and the Indian Institutes of
Management (IIMs) and HSBC has tied up with the Indian School of Business.
Allahabad Bank offers loans at interest rates which are 200 basis points lower than the PLR
for students of IIMs, IITs and professional courses. Recently, SBI also tied up with Frankfinn
Institute, an air-hostess training academy, for the one-year diploma in aviation, hospitality
and travel management.
For those looking to study abroad, SBI has an interesting package as it has tie-up with
Thomas Cook. Thus along with the loan, you can get instant wire transfers, foreign currency
drafts, travellers' cheques, pre-paid card and insurance.
Earlier, banks insisted that the applicant take an insurance policy. Now it is up to the student.
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Its easier now
With effect from FY02, banks have come out with a slew of incentives that are calculated to
make education loans more attractive. Some banks even offer lower interest rates if you
repay the loan within a specified time period.
Education loans also allow attractive tax-savings options. Under Section 80 E of the Income
Tax Act, you can get a deduction of up to Rs 40,000 on repayment of an education loan. This
deduction is available for loans enabling higher education, defined as full-time courses of
graduate or postgraduate studies in engineering, management, medicine, applied and pure
sciences and mathematics and statistics. The lending institution should be one established for
charitable purposes and notified by the Central government.
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Service Quality
Measuring and improving quality is more difficult for services than for products
Unsatisfactory service cannot be replaced or repaired
Intangible and temporary nature
Defining Service Quality
Specifications
Company: Standard operating procedures
Customer: Personal expectations
Misalignment of company and customer specifications can lead todissatisfaction, even if the service is delivered as designed
Effective communication is key in eliminating misalignment
Defining Expectations
Will expectation: Average level of quality that is predicted based on all knowninformation
Should expectation: What customers feel they deserve from the transaction
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Ideal expectation: What would happen under the best of circumstances; useful as abarometer of excellence
Minimally acceptable level: The threshold at which mere satisfaction is achieved
Types of Definitions of Quality
Transcendent: Innate excellence that can be recognized only through experience
Product-based: Measurable quantities are used to define quality
User-based: Quality is in the eyes of the beholder
Manufacturing-based: Conformance to requirements
Value-based: A balance between conformance or performance quality and anacceptable price to the customer
Measuring Service Quality
Reliability: Consistency of performance and dependability
Responsiveness: The willingness or readiness of employees to provide service.
Assurance: The knowledge, competence and courtesy of service employees and theirability to convey trust and confidence
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Empathy: The caring and individual attention provided to customers
Tangibles: Physical evidence of the service
SERVQUAL Model
Compares customer expectations with their experience of the service that was actuallydelivered
Discrepancies are gaps in service quality
Determinants of Service Quality
Reliability
Responsiveness
Competence
Access
Courtesy
Communication
Credibility
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Security
Understanding or knowing the customer
Tangibles
45
Quality: Profit or Cost
Both!
Improving quality does require a company to incur costs Return on quality storyline:
ImprovedServicePerformanc
IncreasedMarketShare
ImprovedCustomerSatisfactio
IncreasedProfitabilit
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Other Quality-Related Sources of Profits
Cost reductions due to increased efficiency
Attraction of new customers resulting from positive word-of-mouth
The ability to charge higher prices
Costs of Quality
Prevention of problems
Inspection and appraisal to monitor ongoing quality
The cost to rework a defective product before it is delivered to a customer
The cost to repair/replace a defected product after it reaches the customer
Implementing Quality Service
Design fail-safe attributes into services
Service guarantees and refunds
Unconditional
Easy to understand and communicate
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Meaningful
Easy to invoke
Easy to collect
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Definition of Gap Analysis
It is a formal means to identify and correct gaps between desired levels and actual levelsIt is a formal means to identify and correct gaps between desired levels and actual levels
of performanceof performance
Used by organizations to analyze certain processes of any division of their companyUsed by organizations to analyze certain processes of any division of their company
SERVQUAL Model GapsSERVQUAL Model Gaps
Gap 1Gap 1
The difference between actual customer expectations and managements idea or perception
of customer expectations
Gap 2
Mismatch between managers expectation of service quality and service quality
specifications.
Gap 3
Poor delivery of service
Gap 4
Differences between service delivery and external communication with the customer
Gap 5
Differences between expected and perceived quality
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Gaps in Service Quality
Cause(s)ProblemGap
Customer judgments ofhigh/low quality based onexpectations vs. actualservice
The service does not meetcustomer expectations,which have beeninfluenced by externalcommunication
Specifications for servicemeet customer needs butservice delivery is notconsistent with thosespecifications
The service specificationsdefined do not meetmanagements perceptionsof customer expectations
The service featuresoffered dont meetcustomer needs
A function of the magnitude and directionof the gap between expected service andperceived service
5. Expectedservice perceived service
Marketing message is not consistent withactual service offering; promising morethan can be delivered
4. Service delivery externalcommunication
Employee performance is notstandardized; customer perceptions are notuniform
3. Service qualityspecification service delivery
Resource constraints; managementindifference; poor service design
2. Managementperception service qualityspecification
Lack of marketing research; inadequateupward communication; too many levelsbetween contact personnel andmanagement
1. Consumerexpectation mgmt. perception
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SERVQUAL Model
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Big bucks for education
HEMA RAMAKRISHNAN
TIMES NEWS NETWORK[ FRIDAY, OCTOBER 21, 2005 12:25:34 AM]
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.
The terms and conditions have to be in sync with the governments guidelines framed in
2001. For starters, there is no margin requirement for education loans upto Rs 4 lakhs. The
requirement is 5% for loans above Rs 4 lakhs advanced for studies in India and 15% for
studies abroad.
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
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loans upto Rs 4 lakhs. It is PLR plus 1% for loans above Rs 4 lakhs. Students dont 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. Heres 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 required for loans taken for studies abroad and this is adjusted in the
margin money.
Bank of Maharashtra charges a yearly interest of 11.25% for loans up to Rs 4 lakhs and
12.25% for loans above Rs 4 lakhs. Simple interest is charged during the moratorium period.
The loan has to be repaid in five years after starting the repayment. A two year extension can
be given if the deadline is not adhered to. Over the last two to three years, BoM has disbursed
education loans to nearly 6,000 students in Maharashtra.
Bank of India (BOI) charges an interest of 10.75% per annum on loans up to Rs 4 lakhs and
11.75% for loans above Rs 4 lakhs. Simple interest is charged during the moratorium after
which interest is compounded. The loans are disbursed directly to colleges.
There are also broad guidelines on the eligibility criteria. For studies in India, banks can
finance school education including plus two stage, graduation and post graduation,
professional courses, computer certificate courses of institutes accredited to Ministry of
Information Technology, courses like ICWA, CFA, CA, courses by IIMs, IITs, IISc, XLRI,
NIFT and those offered by reputed foreign universities, among others. The off-take is
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relatively higher for students pursuing medicine and engineering in private institutions in
cities like Pune.
Most banks have seen a steady rise in loans for students enrolling abroad in professional and
technical courses offered by reputed universities abroad, post graduation courses such as
MBA, MCA, MS and courses conducted by CIMA - London or CPA in the US and so on.
Banks have also come up with special loan schemes for students enrolling in top notch
institutions in India, again eyeing business potential.
The SBI, for instance, has just tied up with Training and Advanced Studies in Management
and Communications (Tasmac), a limited company offering courses MBA vali-dated by
the University of Wales. Students taking up these courses will be eligi-ble for loans on softer
terms.
The bank already has the SBI Scholar Education Loan scheme which is offered to those
securing admissions in designated IIMs, IITs, IISc, Delhi College of Engineering, AIIMS,
Tata Institute of Social Sciences, to name a few. Under this scheme, the loan is sanctioned to
the student without a co-borrower. A 9.25% interest is charged on loans above Rs 4 lakhs.
For loans above Rs 4 lakhs, the yearly interest is 9.75%. Students dont have to give a third
party guarantee or a collateral either. The moratorium is six months.
However, there are no special packages for education loans offered by banks for students
pursuing their studies in education hubs like Pune. Bankers say that no discrimination is
possible as benefits should be uniform for all students.
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Education loans: Bankrolling dreams
HINDU BUSINESS LINE JULY 10, 2005
Radhika Kamath
IF YOU aspire to pursue higher education or a professional course, don't let the cost of the
programme hold you back. If you are sure that taking the course will improve your job
prospects, you could take an education loan to see you through it. Banks now offer a range of
loan products and specialised packages that can help you get by without financially
burdening your parents.
Some of the questions answered in this article are : ---
Who is eligible?
What is covered?
Collateral
Terms of the loan
Incentives for early repayment
Can you switch?
Special packages
The tax angle
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Girl power
TIMES NEWS NETWORK [ THURSDAY, SEPTEMBER 29, 2005 02:04:13 AM]
Women empowerment in education is something that banks cannot turn a blind eye to. Bank of
Maharashtra (BOM) has just started offering education loans on softer terms to women as part
of Maha Bank Shakti scheme.
The interest rate on loans for women students is 10.25 % or 100 basis points below PLR; for
loans up to Rs 4 lakh. For loans above Rs 4 lakh, the interest rate is 11.25%.
Cheaper education loans are already available to Maharashtra Family Bank Card Holders; who
have deposits aggregating to Rs 1 lakh and above. For loans up to Rs 4 lakh, the interest is
9.25%, 200 basis points below PLR.
A 10.25% interest is charged for loans above Rs 4 lakh.A women student who is not a card
holder will now be entitled to an education loan on softer terms. A wee bit of relaxation has
been offered in the repayment period-course period plus six months after joining the job or a
maximum of eighteen months after completing the course, whichever is earlier.
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Education loans: Pvt, foreign banks stay away
Vidyalaxmi & Preeti R Iyer in Mumbai | September 28, 2005 10:03 IST
Some major points from the article are : ---
The government regulation requires a bank to sanction educational loans to every
applicant and there is no discretion allowed. Government regulation on educational
loans is the biggest hurdle as it prevents banks from assessing applications based on
criteria.
Leading banks Citibank, ICICI Bank and HDFC Bank do not have educational loan
products.
UTI Bank and HSBC do have a small presence in educational loans, but they extend
only large sized loans over the limits stipulated by the government.
The government regulations state that banks should lend without collateral up to Rs
750,000 and with collateral Rs 15 lakh (Rs 1.5 million).
Public sector banks have a 90 per cent market share in educational loans, as they are
the most active given their ownership profile. Public sector banks charge 10 to 11 per
cent interest on educational loans, while HSBC and UTI charge interest of 11 to 13
per cent.
What also puts bankers on the defensive is the fact that the student who might have
borrowed from a bank based in India, could have settled abroad at the time of
repayment.
The current delinquency rate is around one-two percent, which rises to five per cent
when students go abroad for higher studies.
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While public sector banks cater to loan requirements up to Rs 15 lakh, their private
sector and foreign peers look after needs on the higher end of the segment.
With SBI, Andhra Bank and Vijaya Bank being active state-owned players in this
segment, HSBC offers loans up to Rs 25 lakh (Rs 2.5 million), while UTI Bank offers
the facility of a travel card denominated in the US dollar, the pound sterling and the
euro.
As demand for study loans is extremely seasonal, educational loans account for an
extremely small proportion of a bank's lending portfolio, pointed out an official from
a leading foreign bank.
Thus far, the entire banking system extended Rs 6,130 crore (Rs 61.3 billion), as
educational loans to 432,000 students, while banks in the state sanctioned Rs 1,425
crore (Rs 14.25 billion) of the same as on March 31, 2005.
Mushrooming of various business schools, emergence of higher fee-structure of
existing professional courses, coupled with the introduction of more unconventional
courses is expected to boost potential within this portfolio.
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Loans at your service :
Higher education may never be the same again with banks willing to finance your
education at attractive rates.
By Amit Kr Chanda Times News Network
This article again provide latest insights about points like :
Eligibility
Courses
Expenses considered for loan
Loan amount
Repayment
Check list
One should do his or her homework before approaching any bank for education loans.
This may differ from bank to bank but overall, it tends to remain the same.
Paperwork includes:
* Mark sheets of the last qualifying examination for school and graduate
studies in India
* Proof of admission to the course
* Schedule of expenses for the course
* Copies of letter confirming scholarship
* Copies of foreign exchange permit, if applicable.
* Two passport size photographs
* Statement of bank account for the last six months of borrower
* Income tax assessment order not more than two years old
* Brief statement of assets and liabilities of borrower
If you are not an existing bank customer you would need to establish your identity
and give proof of residence.
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Visit:
www.cyberjournalist.org.in/banks.html
www.allahabadbank.com/educationloan.htm?key=J
www.bankofbaroda.com/presonal/bobscholar.asp
www.statebankofindia/personalbanking/eduloans.asp
www.denabank/dummy.htm
www.corpbank.com/personal_loans.html
www.hdfcbank.com/Ri/RI-loan-personal-intro.htm
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Provide education loans, AISF urges State
Staff Reporter
HYDERABAD: The All-India Students' Federation has urged the Government to provide
unconditional educational loans for economically backward students and also to set up an
`Educational Development Bank of India.'
At a press conference here on Monday, AISF national president, Ramakrushna Panda,
regretted that in spite of the promise made by the UPA Government in its Common
Minimum Programme that none would be denied access to higher education, several students
had committed suicide this year unable to meet educational expenses.
While a loan programme would certainly help improve the situation, it could not however, be
viewed as an efficient solution to the problem of finances both in the short and long term, he
said.
The AISF thus demanded that the Union Government spend at least 10 per cent of its budget
and the State Government 30 per cent of its budget on education.
The AISF State president, L. Sravan Kumar, and the State secretary, N. Raja Reddy, were
also present.
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Marketing strategy for educational loans
Suresh Bedi
Main points from this article are : ---
The principal element of the strategy should be to reduce the riskness of educational
loans. For that, the banks need to attempt market segmentation and product
positioning. Market segmentation need not be equated with discriminating between
different classes of borrowers.
The banks need to target basically two categories of borrowers.
o The first category comprises the sponsors, whose solvency or financial
capability is well-established and can offer healthy collateral securities. This
class of borrowers may have demand for educational loans not for financial
reasons, but to take tax advantages on repayment or to impart a sense of stake-
holding and responsibility in the mind of their wards so that they take their
credit-based studies seriously.
o The other category comprises parents of the upper layers of brilliant students
who have high probability of employment after education. IBA guideline
permit relaxation of security, margin money and repayment norms in suchdeserving cases.
In order to generate demand for such loans, appropriate and timely advertising with
informational and rational appeal is required so that the target borrowers could bemotivated.
As a part of promotional strategy, banks can gainfully tie up with leading educational
institutions from where they can obtain reliable data about parents financial position
and students academic merit and involve the institution in the disbursement and
subsequent follow-up and supervision of the `loans.
For such arrangements, banks will have to carefully design their loan products within
the contours of the overall policy and arrange suitable training for managers in this
sensitive and non-traditional area.
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The writer is Director, Institute of Management Studies and Research, Maharshi
Dayanad University, Rohtak.
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Loans for studies
By R. Sarin From Business World 2 August 2004
This article suggest that many people see education as a cost , and not as an investment .
Actually it can be seen as an investment . The author says following steps should be
followed : ---
Selecting your Specialization : Give preference to the stream that leads to a
commercially rewarding career . Then zero in on the institution. If the pedigree of
institutions is similar , opt for the one with the lowest cost structure .
Financing your aspiration : One of the best option is education loans , which have
several benefits like :
o No collateral is required for them ;banks can now lend up to Rs. 7.5 lakhs to a
single borrower without any collateral .
o An initial moratorium period till you finish your MBA and get a job ; so there
is less pressure to pay .
o When you move into a job or , for that matter , the highest income bracket ,
you can deduct the interest cost you incur for this loan from your taxable
income .
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Higher education loans EXPLAINED
By Ashish Aggarwal From Business World 26 January 2001
What do you need to know when you start looking for fund for your studies ?
At Home
This article describe in detail the various terms required to obtain an education loan as
mentioned in Model Education Loan Scheme approved by RBI which have already been
discussed above .
Going Abroad
Some options can be : ---
Generally , all top-tier schools in the US and in Europe offer loans for MBAs in
partnerships with specific banks . Its preferable to go for these banks only .
International students can get merit-based grants depending on the GMAT score ,academic achievements and demonstrated skills .
Another option is MyRichUncle.com . It works like a venture capitalist and is an
innovative alternative to the loans that banks give .
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RESEARCH METHODOLOGY
A research methodology defines what the activity of research is, how to proceed, how to
measure progress, and what constitutes success.
A research methodology broadly constitutes : ----
1 . ) SCOPE OF THE STUDY
Scope of the study can be measured in two terms : ----
Geographical Scope : This implies the area or region from where we are going to
draw our sample i.e. area where we going to conduct our research.
The study was constrained to the NCR region. This region was chosen because of the
convenience of location.
Time Scope : This implies the time we have at our disposal to conduct our
study . The time limit specified is approximately 5 months.
Secondary data time : Secondary data has been collected from various
sources. They are : ----
Articles are collected from newspapers like Economics Times , Times of India
. the articles collected are latest so that they are relevant .
Relevant articles from Journals like Business Today, Business India , Business
World, India Today. The articles collected are from journals published after 2000
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because of paucity of resources. These articles were chosen as they were the most
relevant for the study being conducted.
Relevant articles and other data from internet.
Other such secondary data will be collected as and when needed as the study progresses.
2 . ) RESEARCH DESIGN
A Research Design is a framework or blueprint for conducting the marketing research
project . It specifies the details of the procedures necessary for obtaining the information
needed to structure and/or solve marketing research problem.
Initially we conducted an Exploratory Research for provision of insights into and
comprehension of the research . This was necessary to obtain an insight of the current
situation with less expenditure on time and resources. It also lends flexibility to the study and
helps in discovering previously unrecognized insights. As a result, perspective regarding
breadth of the variables operating in a situation is obtained. The results obtained as a result of
this research have been further used fordescriptive research.
Further , the Decision Makers from various banks - were contacted .
Next step is to conduct a Conclusive Research based on the data collected during Exploratory
Research . A Descriptive Research will be conducted . This includes conducting a primary
survey .
This research is single cross sectional design because we have taken one sample and the
sample was interviewed only once .
The method used for survey was be : Personal In-Home Interviewing method
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3 . ) SAMPLE PLAN
A Sampling plan includes definition of : ----
Population
Target population
Sample
Sampling size
Sampling frame
Sampling technique
For our project these variables can be defined as follows : ----
Population : A population can be defined as an aggregate of all the elements sharing some
common set of characteristics , that comprises the universe for the purpose of the problem .
The population for the project All the customers who have taken loans from banks residing
in NCR region.
Target Population : It is the collection of elements or objects that possess the information
sought by the researcher and about which inferences are to be made .
The target population should be defined in terms of : elements , sampling units , extent ant
time .
Element : is the object about which or from which the information is desired .
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In our study the target population is defined as : Any member in the region surveyed
who has taken a home loan from the bank.
Sampling units : is an element or a unit containing the element , that is available
for selection at some stage of the sampling process .
Our sampling unit is : the element is the sampling unit
Extent : Extent refers to geographical boundaries . In our study extent is : ---
NCR region
Time : Time factor is the time under consideration . It is November
2005
Sampling frame : A sampling frame is the representation of the elements of the target
population. It consists of a list or set of directions for identifying the target populations. .
Sampling frame for our study can be a
List of students of IIPM who have availed education loan
city directory
a map
list of various colleges
list of various banks
Sample size : Sample size is the number of elements to be included in a study.
The sample size taken
10 Banks
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Banks:
SBBJ
SBI
Punjab National Bank- Vidya Lakshyapurti Education Loan Scheme
Central Bank of India - Cent Vidyarthi Scheme
Canara Bank
IDBI Money Scholar
HSBC
ICICI
HDFC
Vysya Bank
60 Customers
Sampling technique : A selection method where the elements are selected sequentially.
In our study Sampling technique used is : ---
Bayesian or Traditional approach with sampling without replacement
Convenient Sampling has been used.
RESEARCH INSTRUMENT: The plank on which study rests is information, which has
been procured as a judicious mix of both primary and secondary data.
Primary Data
Personal interviews conducted in different banks with the help of a well structured
questionnaire
Customer survey done with the help of a well structured questionnaire
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Secondary Data
Already published data formed the launch pad for the study.
The sources of secondary data referred to include:
1. Books
2. Periodicals
3. Internet
4. Magazines
TOOLS OF ANALYSIS
Tabulation
Pie charts
Bar diagrams
Means and Averages
Hypothesis testing
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Percentage of courses financed in maximum amount
Professional courses, like M.B.A., M.C.A., B.E., M.E., B.Tech., M.B.B.S., etc. are
financed in maximum amount by banks in general . The percentage is very high
48% .
21% of Post-graduate/specialized courses, like B.Sc., M.Sc., B.A., M.A., B.Com.,
M.Com., etc are financed .
Other courses, like computer courses, fashion designing, commercial pilot training,
etc. are occupy third slot at 17%
School/graduation courses, like High School, B.Sc., B.Com., B.A., etc. are the next at
14% .
Usually, the courses financed should be for durations of more than a year, i.e., 12 months.
Banks are also offering loans for less conventional courses such as biotechnology, fashion
technology and aviation. They are usually flexible in approving and disbursing such loans.
These loans occupy the others category
0%
10%
20%
30%
40%
50%
Percentage
Percentage 14% 48% 21.00% 17.00%
graduationprofession
al
post-
graduationothers
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The reason for such high percentage in professional courses is that more and more people in
India are moving towards attaining a professional qualification . And such qualification is
very costly and still out of reach of many people . Hence people prefer financing it . The
growing percentage is that of others category as more and more people are moving towards it
.
Percentage of total amount the banks prefer financing
From the above graph we see that most of the banks (62.5%) prefer financing 70-90% of the
total amount i.e. a margin money is charged by these banks. This means that the personavailing of the loan is required to contribute a certain percentage of the total amount of the
fees and this amount has to be used by him first. Only 37.5% of the total banks surveyed
finance more than 90%. In all the cases for loans upto Rs. 4 lakh no margin money is charged
while for loans above Rs. 4 lacs for studies in India a margin money of 5% and for studies
abroad 15% is charged.
The loan amount can also depend on various factors like : ---
The borrower's parents/guardians net monthly salary.
Could also be calculated as being six or 10 times the monthly salary of the parent.
Ultimately, however, the loan amount would depend on the discretion of the bank.
0%
0%
62.50%
37.50%
0 0.2 0.4 0.6 0.8
less than 50%
50-70%
70-90%
more than 90%
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Factors that have the greatest impact on consumer's decision
46%
9%12%
33% Past experience
Ads
Direct Marketing
efforts
Friends / relatives
This analysis throw light on a very important point that every encounter with a person is
important . Because if he is satisfied at every point of time then only he/she will continue to
avail services of the bank . Hence past experience comes out to be a very important factor in
determining which bank to look for in obtaining a loan or other such services.
Another important factor impact of friends and relatives can also be derived from the first
factor itself. A satisfied customer will recommend a bank to their friends and relatives.
This leads to a conclusion that long-term relationship is the key to success especially in
banking as observed from this study.
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Communication Tools used by the Banks
The most popular media used by banks for advertising about their loan facility are Print and
Public Relations (used by 5 and 4 banks respectively).
The banks essentially relied on word of mouth rather than deliberately using some explicit
communication tools.
Communication Tools from which
beneficiaries came to know of the facility
15
4
10
16
20
0
5
10
15
20
25
Print T.V DirectMarketing P.R Others
Tools
Numberof
beneficiaries
3
1
2
4
0
0.5