RBI Governor Rajan frowns on 'subsidising' foreign education loans

Mumbai, Sept 22: Calling for a re-think on easy credit, RBI Governor Raghuram Rajan has said banks are subsidising student education loans for foreign studies under the priority sector lending (PSL) segment.

"We subsidise, in the priority sector, student loans to study abroad. Are students studying the neediest in the country abroad or is it the most important?" Rajan said in an address to bankers at an industry summit here last week.

"This is something people have got used to. I am not saying it is bad, but it is something you should ask questions about. We have to keep asking ourselves, why should some sectors get more easy credit than others," he said.

Under priority sector lending norms, banks are mandated to lend up to 40 percent of their overall credit to marginalised sectors like agriculture, housing, small businesses and education. Banks lend to such identified sectors as per their base rates, and the shortfalls of the targets have to go to the low-yielding Rural Infrastructure Development Fund (RIDF).

[List of education loans that Indian banks provide as education loan for studies in India and abroad]

Most banks, especially in the private sector and overseas banks fail to meet these targets. Even some state-run banks fail to meet this target due to lower the number of branches. Under the present norm, a loan of under Rs 20 lakh taken by an individual for studying abroad qualifies as priority sector lending.

As on September 15, the outstanding education credit, including education loans to study within the country and abroad, stood at Rs 579.02 billion, according to RBI data.

PTI