“With professional education becoming a must for the youth, a student loan seems the most effective way to tide over these expenses,” says Paul.
SkillingIndia: India is heading towards creating a skilled workforce in 10 years and educational funds is an important part of that. So, apart from parental support, what are the different options available to the youth/adult to fund their vocational or higher education in India? How is their access proportionate to the urban, semi urban and rural areas?
Santanu Paul: Both public and private banks today offer a number of products targeted at the youth to fund their higher education. With professional education becoming a must for the youth, a student loan seems the most effective way to tide over these expenses. The interest rates and payment schedules are designed to make it relatively painless for students to repay the loan once their education is complete and they find a job. These are available in urban, semi-urban and rural areas. In fact, student loans have grown more than ten times since 2004, when they were introduced in the Union Budget by then Finance Minister Yashwant Sinha. Banks expanded overall credit by 23% in the period.
Most of the public sector banks in India have categorized student loans in two categories. For studies in India, students can borrow up to INR 4 lakh without providing any security or margin. A loan amount of INR 4 to 7.5 lakh can be availed against a third-party guarantee. For loans to study outside of India, amounts worth INR 7 lakh and above are usually sanctioned against fixed deposits, NSC certificates, property worth the loan amount and a margin amount of 15%.
On the vocational training front there are a number of state government sponsored programs that go on for 45 days to six months and are highly subsidized and sometimes also pay a stipend. These programs are available across various sectors of the economy. However, the quality of some of these programs is quite poor.
If a youth or adult wants to fund a vocational training or skill development program that is conducted by a private training company, there are virtually no loan products available to support them.
SkillingIndia: How many public or private banks have participated and/or are involved in assisting people with educational loans? Are there any significant changes that have occurred recently to the regular guidelines for availing educational loans to enhance greater assistance to people and to promote wider reach?
Santanu Paul: Most of the banks are into providing education loans. Some of the leading public and private sector banks that provide educational loans in India include State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, IDBI Bank, Axis Bank, HDFC, ICICI etc.
Study loans are categorized as priority sector lending for public sector banks. They are seen as investments for economic development and prosperity. But, instances of students defaulting on loan payments have prompted Indian Banks Association (IBA) to review and introduce changes in the guidelines for the educational loan scheme.
The “Model Loan Scheme for Vocational Education and Training” has been developed as an extension of the existing Model Educational Loan Scheme for pursuing higher education in India and abroad to support the national initiatives for skill development. This is aimed at providing financial support from the banking system to those who have the minimum educational qualification, as required by the institution / organization, for the course eligible under the scheme.
SkillingIndia: Is every skill developer/education institute engaged with bank/s for educational fund assistance for their different programs? Where are the gaps and how can they be filled?
Santanu Paul: Most educational institutions tie up with banks for educational fund assistance. However, the same cannot be said for skill development companies. There are virtually no products available in this area.
The last couple of budgets were instrumental in setting up and funding the National Skill Development Corporation (NSDC), which, within a very short span of time, has done a great job of forging public-private partnerships and co-incubating for profit business models with entrepreneurs to attack skill development and employability on a large scale. This has significantly increased the availability of skill development programs in both rural as well as urban areas.
However, on the supply side, in order to support students, this needs to be taken a step further. The government can direct public sector banks to make vocational education loans a priority lending sector item. Instead of various ministries pouring big money down the drain year after year in the form of direct subsidies to mediocre training organizations and NGOs that are not accountable for employment outcomes, let the government park funds with banks to provide a default guarantee for only the 10-25% of the vocational education loans that may go bad.
SkillingIndia: Today student/education loans are becoming a bit of a stress for banks because of the slow economic growth. How is this upsetting the job prospects of the new/existing workforce?
Santanu Paul: Usually, a student of an elite business or engineering school would have been offered a job that paid well enough to start repaying the loan almost immediately after graduation. However, in today’s economic environment, even reputed companies are hiring less number of people, which makes it even difficult for students to meet the repayment commitments putting a stress on banks.
However, the employability problem in India is not just related to the demand for jobs, but also to the quality of graduates that are coming out of our institutions. Numerous studies have documented the high unemployability of India’s college graduates; with figures often estimated to be as high as 75%. While the current output of graduates is 3 million annually, the number is slated to rise to close to 10 million by 2020 as policy makers focus aggressively on increasing the nation’s gross enrolment ratio from the current 10% to 30%.
Hence banks should also be worried about the absence of a mechanism to determine the credentials of educational institutions pertaining to the quality of education, number of qualified teachers and infrastructure they have in place to educate students. Their ability to place students in jobs should also be examined.
SkillingIndia: What do you recommend different stakeholders should do to relieve people of this situation?
Santanu Paul: I think there are several things we can do to help relieve people of this situation. First, better regulations should be put into place to ensure that institutes (private and public) that have been given the ability to print degrees actually provide quality education. Those that are unable to do so should either be shut down or forced to improve quality.
Secondly, it is critical that more focus be directed towards providing quality vocational and skills training and it actually helps improve the employability of youth coming out of colleges today. A lean and highly targeted national vocational education loan scheme should be created that can provide real employability.
SkillingIndia: Are we getting any kind of assistance from World Bank to help the skill development cause in India?
Santanu Paul: The World Bank (WB) plans to fund skill deployment initiatives in India and provide technical assistance to the NSDC. It has offered INR 480 crore to boost the country’s plans to train 150 million skilled workers by 2022. The funds can be used for developing innovations in skill training giving better exposure to partners and putting in place a central monitoring system for mapping the growth of the sector, among other things.
SkillingIndia: Anything you would like to add?
Santanu Paul: For 2012-13, the Finance Minister proposed to allocate INR1000 crore to National Skill Development Fund (NSDF). The NSDC partners have opened 496 permanent and 2429 mobile centres in 220 districts across 24 states. More than 89,500 persons have been trained and almost 80% employed. Under NSDC, 10 Sector Skill Councils have been sanctioned. Of these, Sector Skill Councils for Automobile, Security, Information Technology and Retail sectors have become operational. These different proposals will definitely help improve the quality and quantity of vocational and skill development programs.
However, in order to ensure the affordability of such programs, the government needs to undertake various initiatives to promote financing for skill development in the country. The time is ripe for a national vocational education loan scheme that will make young job seekers eligible for small-ticket bank financing in the range of 10-50K so that anyone can access a quality skill development program of their choosing irrespective of financial means and start repaying the loan once they have secured a job.