NEW DELHI: In order to encourage banks to be responsible for education loans, RBI has said rescheduling of payment period of such loans due to unemployment of nonpayer will not be treated as updated accounts for computing NPAs.
Banks may be allowed up to three spells of the moratorium (not exceeding 6 months each) during the life cycle of education loan, taking into account spells of unemployment/underemployment, “without treating them as presentation as restructuring”, RBI said in a letter to the Indian Banks’ Association (IBA).
However, banks would be required to maintain a higher provisioning of 5 per cent during the additional cessation period and one year afterwards.
The RBI’s answer was like a clarification sought by the IBA whether the education loans with prolonged repayment period be treated as updated loans.
“The capability of the extended repayment period and increased number of the moratorium for repayment may be extended to existing mortgagors whose accounts are categorised as ‘standard’…,” said the Reserve Bank of India.
As per RBI’s Master Circular of July 2015, accounts that are restructured from April 2015 will interest higher provisioning and will be classified as NPA.
In 2013, the Department of Financial Services (DFS) had notified that if the repayments in education loans are prolonged due to revision in the repayment period, the same may not be treated as rearranging.
IBA had written to RBI to confirm that the notification of DFS of 2013 “holds good even now” and that banks need not treat such an extended repayment period of education loans as restructuring.
IBA said that the relaxation in repayment of loans is needed as “it may so happen that a nonpayer fails to get a good revenue or a job if the market has a slow-down”.
On the other hand, it said, the student may not get a job, due to macroeconomic conditions, which may result in failure to pay and spoils the credit score of both the student and his parents who are usually co-borrowers.