Education Loans by Commercial Banks in India

7/30/2019 Education Loans by Commercial Banks in India

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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



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



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

Education Loans by Commercial Banks in India

Documents

Transcript of Education Loans by Commercial Banks in India