To sanction or not to sanction

Updated on: Monday, April 20, 2009

If you still feel the education sector is insulated from recession, apply for a bank loan! Banks have taken a tough stand in the wake of the recession that has reduced placement rates at even the best institutions. In fact a public sector bank recently announced that it would give an amount equal to government fees for a professional course. The irony is that a major chunk of students depend on private or self-financing institutions for professional courses where the fees are much higher! “We are following RBI regulations as far as providing education loans are concerned and no new rules have been implemented,” said a Relationship Manager attached to the State Bank of Travancore (SBT).

Public sector banks were more flexible in providing education loans before the recession and more often relaxed RBI norms in favour of the student. But most banks have now realised that many students, who have loans and have completed the course for which they got the money, are yet to be placed. Of course there was a time when banks vied with each other to dole out education loans. But that was in the pre-recession era. Today things have changed. “We check the repayment capacity of a student’s parents as we cannot rely solely on the placement chances of the student,” added the SBT official.

“During this period of recession, no course can guarantee a job. At present banks give up to Rs. four lakhs without security but anything more than this could warrant security being asked for. However even for a loan of up to four lakhs the co-obligation of parents is required. So there is nothing new in checking a parent's repayment ability,” said a Senior Manager of the Punjab National Bank (PNB) — a leading provider of education loans. Apart from the above, if you are a student looking for a loan, you should know that quite a few banks have stopped granting loans to students who are taking up certain diploma courses — something they never used to do before. And your chances of getting a loan if the diploma course is offered by a foreign institution are bleak. Banks have also informally admitted that courses like air hostess training, fire fighting, lift technology and retail management don’t enter the loan net. “Diploma courses should be full time and should be job-oriented, otherwise we can’t provide loans,” admitted the Manager of PNB. But to give the banks their due, they had sent out alerts about institutions that were not recognised. And many banks are planning to issue a notice about ‘insecure courses’.

Your loan guide
* Make sure that the institution or course is recognised

* Check the institution’s credibility with the bank. You will get a placement record from other students who have taken a loan from the bank

* Try to find a part-time job and save that income to repay the loan after the course

* Start repaying the loan as soon as you get your first salary.

* If you are not able to repay due to the lack of placement, disclose this to the bank and request for an extension of your repayment period.

* Try to pay the interest even in an extreme situation

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To sanction or not to sanction

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