Merit + Loan = Dream

3 October 2010

Kusham Panwar was clear about her next move. After completing her M.Sc. in Biotechnology at Maharaja Ganga Singh University in Bikaner she wanted to pursue an MBA in Biotechnology. This course, in her opinion, offered a perfect blend of managerial and R&D skills.
Fast-growing biotech companies were in need of people with expertise in areas such as marketing management, licensing and intellectual property rights besides a strong scientific background. She applied for an MBA at Pune's MITCON Institute of Management and in 2008 cleared the entrance exam. Soon after, she got a call from the institute asking her to submit the fees for the two-year course within 45 days.
She applied for a Rs 5 lakh education loan at State Bank of Bikaner and Jaipur. The bank sat on her application for nearly a month and in the end denied her loan without citing any reasons. She was left with no time to approach any other bank or financial institution and so had to give up her MBA dream. "We were informally told that since my father, a government employee, was already a guarantor for a loan my brother had taken for his engineering course, the bank did not feel comfortable lending," she says, adding that they had no issues with the institute's reputation or her past academic record.
Education loans come under priority sector lending and about 80 per cent of applicants for loans of all sizes and for institutes in India and overseas receive approval. But the picture becomes stark for loans more than Rs 4 lakh - typically, the loan amount needed by students pursuing an MBA or other post-graduate professional courses. Not only do they need to provide collateral for such loans, often income-based guarantees are mandatory.
The result, says Prashant A. Bhonsle, Country Head of HDFC Credila Financial Services, is that two in three loan applications for amounts above Rs 4 lakh are estimated to be turned down by banks.
Issues such as lack of tangible collateral, unsatisfactory third-party guarantors, and the lack of coordination between two branches of the same bank - the branch where the loan is sanctioned and where it is delivered - come in the way of loans for students, too.
Experts blame the government and not the banks. "Barring the case of top institutes, banks are not very flexible on rules because education loans are a high-risk business for them. That is why private sector and foreign banks have limited exposure to this sector," says Bhonsle. Over the past four years, the Ministry of Human Resource Development has been talking about setting up a National Education Finance Corporation to help students pursue higher education but nothing has been done so far.
Industry insiders argue that there are many ways to energise this sector. In the US, for instance, there are government-funded specialised loan programmes such as Stafford Federal Student Loan Program or the Perkins Loan Program that step in to ensure loans for all students who are good enough to get into any accredited educational institutions.
"In India, we can have similar institutions which can fund 70-80 per cent of the higher education loans, while reducing the burden (and risk) on banks to 20-30 per cent," says Harsh Roongta, CEO, ApnaLoan.com. Had such a system existed, Kusham would today be working with the Biocons, Ciplas, Dr Reddys or DuPonts of the world and not hunting for a job three years after completing her Master's degree.

  • Applicants for post-graduate professional loans*: 200,000
  • Percentage of loan applications sanctioned: 35 per cent
  • Delinquency rate in such loans: 4 per cent
  • The way forward: A dedicated govt education loan fund

*Above Rs 4 lakh