Role of nationalized banks in financing educational loan for expansion of professional and technical education in the state of Bihar since 2001

Abstract

This study is focused on the role of nationalized banks in financing education loan for expansion of professional and technical education in the state of Bihar since 2001. In this type of funding, the loan is made to a student to fulfil the borrower’s educational commitments. It is a long-term loan and the payments are deferred till the time the education is completed and for a period of 6-months after that or when the borrower finds a job, whichever is earlier. The interest rate charged is higher in these type of loans as compared to others due to high risk of repayment inherent in it and the reduced borrower’s repayment capacity. Education loan forms the major part of NPAs of banks in India. The Government of India had announced a Rs 2500 crore moratorium on education loans in the last budget. Education loans have become a major source of funding education expenses due to rising expenses and higher cost of living. The loan amount is not transferred to the borrower rather the payment is made directly in the educational institution’s account by the bank to remove the element of fraud in the lending process. Despite all this, one may still encounter shortage of funds. An education loan, therefore, plays a vital role in such a scenario by helping to bridge the gap between the shortfall and the required amount.