Defaults have increased sharply in the small ticket education loan segment (loans below Rs 4 lakh), according to CIBIL TransUnion Market Insights report on education loans. The findings may have implications for lenders, especially public sector banks, some of which have large exposure to education loans. While there is a growth in the amount of education loans disbursed, more than 3.5 lakh of the 28 lakh accounts have become NPAs, amounting to Rs 7,000 crore.
As a result, loans below Rs 4 lakh, which used to be almost half of the loan disbursed prior to 2012, have dropped to less than 20 per cent of the total loan amount disbursed in recent years.
"The importance of such delinquencies can be seen in two aspects: first, these delinquency trends predict the risk profile of future borrowers who will join the mainstream credit market; and second, they may also be reflective of the potential job opportunities in the Industry", said Harshala Chandorkar, COO of TransUnion CIBIL.
The report stated that there is a marked shift towards loans of ticket size greater than Rs 15 lakh, which currently constitute over half of the loan amount disbursed. A possible explanation for this shift to the higher ticket bracket indicates an increasing cost of education over the last five years.
Looking at age trends, high ticket education loans given to borrowers above 23 years age group have a one per cent default rate. On the other hand, loans below Rs 4 lakh given to borrowers of the below 21 years showed a two to three times higher default rate than the least risky basket.
“Interestingly, we observed that from the year 2012 onwards, the default rates on big ticket loans have remained steady while relative delinquency of the low ticket education loans, adjusted for amortisation and tenure, have shot up to four times the delinquency rate of big ticket loans,” Chandorkar said.
This also raises questions on quality of education and available job opportunities for the emerging workforce from category II and III academic institutions.