To surge over the bad loans and structure their loan products, Indian Banks Association is planning to rate b-schools and other educational institutes to help banks to structure their loan products better. Banks, in a recent meeting with over 150 institutes, decided that banks will use criteria like placements, academic standards, intellectual capital and connection with the industry, etc.. to rate the institutions.
The institutes will be rated by IBA under the aegis of Pritam Singh, the director of International Management Institute, New Delhi. One of the major concerns of banks, when they provide loan to their client is the recovery of the loan amount. Thus, a good placement record with higher salary offer for students would make the loan repayment less risky and would enable banks to offer better security terms and lower interest rates. The whole rating process is expected to take around six months.
The major concern for banks is the loan default rate. Thus, banks had also shown interest in tracking students, who take loans, after they pass out. IBA also felt the need for legislation where employers shall deduct loan installments from monthly salary of their employees who took education loans and remit it to the bank periodically.
Education loans have become a popular way of finding higher education in India. The cost of education in India is going higher every year and thus the demand for student loans is growing. The increase in the number of self-financed institutions ie... private institutions in the fields of engineering, management and medical has escalated the need of such loans, thus making a huge market for it.
At present, an education loan of up to Rs. 10,00,000 is considered for students in India and Rs. 20,00,000 for abroad. Despite of this, the IBA and education institutions also discussed whether to charge differential rates on education loan. There could also be flexibility in terms of repayment.