- To encourage banks to lend to students, the central government is set to create a Rs 1,000-crore credit guarantee fund that banks can draw upon in case of defaults on loan repayments.
- There has been a series of discussions in recent weeks between banks and finance ministry officials on setting up such a fund, sources in the banking sector. The plan is to give cover against default to 65 per cent of the loan amount, they said.
- Other proposals being considered by banks and the finance ministry include lending for skill development courses and extension of the education loan tenure, which ranges from five to seven years now.
- The government’s stand is that no child should miss out on an opportunity to pursue studies due to lack of financial resources. As on February 20, banks’ outstanding education loans totalled Rs 63,500 crore, Reserve Bank of India data showed.
- The government fears banks may shy away from giving loans to students if the rate increases. This has prompted it to consider creating a credit guarantee fund.
- Bankers say supporting vocational courses is in line with the Narendra Modi government’s thrust on the ‘Make in India’ and ‘Skill India’ programmes.