Banks argued, in a representation to the RBI in September, that this will help the borrowers who opt to gain some work experience after an initial degree before pursuing higher studies.
Under the existing norms, lenders have to classify an existing loan as ‘restructured’ if it is partly repaid by a borrower. This results in higher interest rates for the borrowers if they take a fresh loan.
“If a borrower takes an education loan and starts to repay it after the end of the moratorium period, it is difficult to secure another loan without repaying the existing education loan in case the borrower decides to pursue further studies,” said a bank executive, who did not wish to be identified.
Banks said in their representation to the RBI that in such cases the repayment or moratorium period of the first loan should be allowed to be realigned with the repayment period of the second loan.”If the regulator accepts this, then the existing loan will not be treated as a restructuring and the account will continue to be a standard asset,” said the executive. Classification of an account as ‘restructured’ leads to banks making more provisions for such lending and also impacts the borrower’s credit rating.
Another bank executive said that already, in the case of borrowers who directly opt for higher studies after graduation, the banks realign the moratorium period, but they cannot extend the same facility to those borrowers who have repaid some amount and the moratorium period has ended.
“Clarity from the central bank will help both banks and students,” said the executive.
As per the latest RBI data, outstanding bank loans to the education sector increased 17% year-on-year to ₹96,847 crore in 2022-23. A report by ratings agency Crisil said the prepayment rate for education loans is high within four-six years of loan disbursement on average, which comes from the salaries of the students after they get employed.
The report said any prolonged downturn in employment rate and job losses as the loan portfolios move to a full-EMI structure and their impact on asset quality remain monitorable.
