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Sbi sip report

  2. 2. CERTIFICATE This is to certify that the dissertation titled “Empirical analysis of reason for low penetration of our scholar loan scheme” issued on 7th May, 2013 submitted by Snehlata of MBA 2nd (semester) of the department, Faculty of Management Studies- BHU for a period of 2 months for the partial fulfillment of the requirement of the Masters in Business Administration, embodies the bonafide work done by her, under the supervision of Shri Sujit Kumar. I also declare that this dissertation report is a result of her effort and no part of this research has been published earlier or been submitted as a project by her for any degree or diploma for any institute, university or organization. Date : Signature of Mentor: 2
  3. 3. DECLARATION I hereby declare that the poject titled, “Empirical Analysis of reason for low penetration of our scholar loan scheme” is original work carried out by me during the year 2012-2014 under the suitable guidance of Shri Sujit Kumar and Prof. S.K. Dubey in partial fulfillment of the requirement of Masters in Business Administration. I also declare that this dissertation is a result of my effort and no part of this research has been published earlier as a project by me for any degree or diploma for any institute, university or organization. 3
  4. 4. ACKNOWLEDGEMENT I am indebted to countless individuals for their invaluable contributions to the completion of this study and report. I greatly appreciate the college students who participated in phone interviews to provide feedback on issues pertaining to student non-application for aid and to recent legislation that increases student aid eligibility. In particular, I wish to thank my mentors Shri Sujit Kumar, Chief Manager (BHU BRANCH), Prof. S.K. Dubey, Professor, Faculty of Management Studies (BHU), Mr. Abhishek Deep, RM (PB) (BHU BRANCH) for their enthusiastic support and tremendous help and Mr. Rajeev Kumar Malik, Research Scholar(BHU) whose ongoing support made this study possible. I would also like to thank the IIT (BHU) students who responded to the survey and in addition, I would like to give my greatest thanks to god and my parents and friends who had always been a moral and financial support during the work of my entire project. Without all of them this study would not have been possible. 4
  5. 5. TABLE OF CONTENTS S.NO. CONTENTS PAGE NO. 1. Industry profile 8 2. Company profile 8 3. History 12 Structure 14 Current board of directors 14 International presence 14 Associate banks 16 Non banking subsidiaries 17 Other SBI service points 17 Logo and slogan 18 Recent awards and recognitions 18 Major competitor 18 4. Details of working 20 5. Theoretical framework of the study 21 Education system in India 21 Meaning, importance and types of scholar loan 21 6. SBI aid for meritorious students 23 7. SBI scholar loan scheme 24 8. Literature review 28 Education loan programs in other countries Education loan in India Findings from research studies conducted in India and abroad 9. 28 5
  6. 6. 10. 29 11. Time period 29 12. Objectives 30 30 32 35 13. Research gap 38 14. Methodology and Analysis 71 15. Data analysis and observations 72 16. Deficiencies in education loan scheme 74 17. Conclusion 75 18. Recommendations 76 19. Bibliography 78 LIST OF TABLE AND CHARTS S.NO. 1. CHARTS PAGE NO. Chart 1 40 2. Chart 2 41 3. Chart 3 42 4. Chart 4 43 5. Chart 5 44 6. Chart 6 45 7. Chart 7 46 8. Chart 8 47 9. Chart 9 48 10. Chart 10 49 6
  7. 7. 11. Chart 11 50 12. Chart 12 51 13. Chart 13 52 14. Chart 14 53 15. Chart 15 54 16. Chart 16 55 17. Chart 17 56 18. Chart 18 57 19. Chart 19 58 20. Chart 20 59 21. Chart 21 60 22. Chart 22 61 23. Chart 23 62 24. Chart 24 63 TABLES S.NO. TABLES PAGE NO. 1. Table 1 65 2. Table 2 66 3. Table 3 66 4. Table 4 68 5. Table 5 68 7
  8. 8. 8
  9. 9. INDUSTRY PROFILE Recently, the RBI took a few important steps to make the Indian Banking industry more robust and healthy. This includes de-regulation of savings rate, guidelines for new banking licenses and implementation of Basel Norm III. Since March 2002, Bank ex (Index tracking the performance of leading banking sector stocks) has grown at a compounded annual rate of about 31%. After a very successful decade, a new era seems to have started for the Indian Banking Industry. According to a Mc Kinsey report, the Indian banking sector is heading towards being a high-performing sector. According to an IBA-FICCI-BCG report titled ‘Being five stars in productivity – road map for excellence in Indian banking’. India’s gross domestic product (GDP) growth will make the Indian banking industry the third largest in the world by 2025. According to the report, the domestic banking industry is set for an exponential growth in coming years with its assets size poised to touch USD 28,500 billion by the turn of the 2025 from the current asset size of USD 1,350 billion (2010)”. So, before going in its future, let’s have a glance at its historical performance. 9
  10. 10. In the last 5 years, foreign and private sector banks have earned significantly higher return on total assets as compared to their pubic peers. If we look at its trend, foreign banks show an overall decreasing trend, private banks an increasing trend and Public banks have been more or less stagnant. The net NPA of public sector bank was also significantly higher than that of private and foreign banks at the end of FY11, which indicates the asset quality of public banks is comparatively poor. The Capital Adequacy ratio was also very high for private and foreign bank as compared to public banks. In conclusion, we could say that the current position of ROA, Net NPA and CAR of different kinds of players in the industry indicates that going ahead; public banks will have to face relatively more problems as compared to private and foreign banks. After looking at industry performance, let’s see how the different players in the Banking Industry have performed in the last five years. 10
  11. 11. The table above indicates that overall the top private banks have grown faster than that of public banks. Axis Bank, one of the new private sector banks, has shown the highest growth in all parameters i.e. net interest income, deposits, advances, total assets and book value. Among public sector banks, Bank of Baroda has been the outperformer in the last five years. Looking at all of the above, it is expected that Private Banks are better placed to garner growth in the Indian Banking Industry. 11
  12. 12. GROWTH DRIVERS OF INDIAN BANKING INDUSREY  High growth of Indian Economy: The growth of the banking industry is closely linked with the growth of the overall economy. India is one of the fastest growing economies in the world and is set to remain on that path for many years to come.  Rising per capita income: The rising per capita income will drive the growth of retail credit. Indians have a conservative outlook towards credit except for housing and other necessities. However, with an increase in disposable income and increased exposure to a range of products, consumers have shown a higher willingness to take credit, particularly, young customers  New channel – Mobile banking is expected to become the second largest channel for banking after ATMs: New channels used to offer banking services will drive the growth of banking industry exponentially in the future by increasing productivity and acquiring new customers. During the last decade.  Financial Inclusion Program: Currently, in India, 41% of the adult population doesn’t have bank accounts, which indicates a large untapped market for banking players. Under the Financial Inclusion Program, RBI is trying to tap this untapped market and the growth potential in rural markets by volume growth for banks.  Increasing non-performing and restructured assets: Due to a slowdown in economic activity in past couple of years and aggressive lending by banks many loans have turned non-performing. Restructuring of assets means loans whose duration has been increased or the interest rate has been decreased.  Intensifying competition: Due to homogenous kind of services offered by banks, large number of players in the banking industry and other players such as NBFCs, competition is already high. Recently, the RBI released the new Banking License Guidelines for NBFCs. So, the number of players in the Indian banking industry is going to increase in the coming years.  Managing Human Resources and Development: Banks have to incur a substantial employee training cost as the attrition rate is very high. Hence, banks find it difficult manage the human resources and development initiatives 12
  13. 13. COMPANY PROFILE The evolution of State Bank of India can be traced back to the first decade of the 19th century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2 January 1809. It was the first ever jointstock bank of the British India, established under the sponsorship of the Government of Bengal. Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras (established on 1 July 1843) followed the Bank of Bengal. These three banks dominated the modern banking scenario in India, until when they were amalgamated to form the Imperial Bank of India, on 27 January 1921. An important turning point in the history of State Bank of India is the launch of the first Five Year Plan of independent India, in 1951. The Plan aimed at serving the Indian economy in general and the rural sector of the country, in particular. Until the Plan, the commercial banks of the country, including the Imperial Bank of India, confined their services to the urban sector. Moreover, they were not equipped to respond to the growing needs of the economic revival taking shape in the rural areas of the country. Therefore, in order to serve the economy as a whole and rural sector in particular, the All India Rural Credit Survey Committee recommended the formation of a state-partnered and state-sponsored bank. The All India Rural Credit Survey Committee proposed the take-over of the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks. Subsequently, an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI) was established on 1 July 1955. This resulted in making the State Bank of India more powerful, because as much as a quarter of the resources of the Indian banking system were controlled directly by the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in 1959. The Act enabled the State Bank of India to make the eight former State-associated banks as its subsidiaries. 13
  14. 14. The State Bank of India emerged as a pacesetter, with its operations carried out by the 480 offices comprising branches, sub offices and three Local Head Offices, inherited from the Imperial Bank. Instead of serving as mere repositories of the community's savings and lending to creditworthy parties, the State Bank of India catered to the needs of the customers, by banking purposefully. The bank served the heterogeneous financial needs of the planned economic development. Branches The corporate center of SBI is located in Mumbai. In order to cater to different functions, there are several other establishments in and outside Mumbai, apart from the corporate center. The bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater to its customers throughout India. ATM Services SBI provides easy access to money to its customers through more than 8500 ATMs in India. The Bank also facilitates the free transaction of money at the ATMs of State Bank Group, which includes the ATMs of State Bank of India as well as the Associate Banks – State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc. You may also transact money through SBI Commercial and International Bank Ltd by using the State Bank ATM-cumDebit (Cash Plus) card. Subsidiaries The State Bank Group includes a network of eight banking subsidiaries and several non-banking subsidiaries. Through the establishments, it offers various services including merchant banking services, fund management, factoring services, primary dealership in government securities, 14
  15. 15. credit cards and insurance. The eight banking subsidiaries are:  State Bank of Bikaner and Jaipur (SBBJ)  State Bank of Hyderabad (SBH)  State Bank of India (SBI)  State Bank of Indore (SBIR)  State Bank of Mysore (SBM)  State Bank of Patiala (SBP)  State Bank of Saurashtra (SBS)  State Bank of Travancore (SBT) PRODUCTS & SERVICES Personal Banking  SBI Term Deposits SBI Loan For Pensioners  SBI Recurring Deposits Loan Against Mortgage Of Property  SBI Housing Loan Loan Against Shares & Debentures  SBI Car Loan Rent Plus Scheme  SBI Educational Loan Medi-Plus Scheme Other Services  Agriculture/Rural Banking  NRI Services  ATM Services  Demat Services  Corporate Banking  Internet Banking 15
  16. 16.  Mobile Banking  International Banking  Safe Deposit Locker  RBIEFT  E-Pay  E-Rail  SBI Vishwa Yatra Foreign Travel Card  Broking Services  Gift Cheques State Bank of India (SBI) is a multinational banking and financial services company based in India. It is a government-owned corporation with its headquarters in Mumbai, Maharashtra. As of December 2012, it had assets of US$501 billion and 15,003 branches, including 157 foreign offices, making it the largest banking and financial services company in India by assets. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidency banks—Bank of Calcutta and Bank of Bombay—to form the Imperial Bank of India, which in turn became the State Bank of India. Government of India nationalised the Imperial Bank of India in 1955, with Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI was ranked 285th in the Fortune Global 500 rankings of the world's biggest corporations for the year 2012. SBI provides a range of banking products through its network of branches in India and overseas, including products aimed at non-resident Indians (NRIs). SBI has 14 regional hubs and 57 Zonal Offices that are located at important cities throughout the country. 16
  17. 17. SBI is a regional banking behemoth and has 20% market share in deposits and loans among Indian commercial banks. The State Bank of India was named the 29th most reputed company in the world according to Forbes 2009 rankings and was the only bank featured in the "top 10 brands of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2010. History The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency till 1861 when with the Paper Currency Act; the right was taken over by the Government of India. The Presidency banks amalgamated on 27 January 1921, and the re-organised banking entity took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company but without Government participation. Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State Bank of India. The government of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority. In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI. A process of consolidation began on 13 September 2008, when the State Bank of Saurashtra merged with SBI. 17
  18. 18. SBI has acquired local banks in rescues. The first was the Bank of Behar (est. 1911), which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior State, under the patronage of Maharaja Madho Rao Scindia. The bank had been the Dukan Pichadi, a small moneylender, owned by the Maharaja. The new banks first manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in Kerala. The State Bank of India and all its associate banks are identified by the same blue keyhole logo. The State Bank of India word mark usually has one standard typeface, but also utilises other typefaces. Structure Current Board of Directors As on 14 January 2013, there are fifteen members in the SBI board of directors: Pratip Chaudhuri (Chairman)  Hemant G. Contractor (Managing Director)  Diwakar Gupta (Managing Director)  A. Krishna Kumar (Managing Director)  S. Visvanathan (Managing Director)  S. Venkatachalam (Director)  D. Sundaram (Director)  Parthasarathy Iyengar (Director)  Thomas Mathew (Director)  S.K. Mukherjee (Officer Employee Director)  Rajiv Kumar (Director)  Jyoti Bhushan Mohapatra (Workmen Employee Director) 18
  19. 19.  Deepak Amin (Director)  Harichandra Bahadur Singh (Director) International presence The Israeli branch of the State Bank of India located in Ramat Gan. As of 28 June 2013, the bank had 180 overseas offices spread over 34 countries. It has branches of the parent in Moscow, Colombo, Dhaka, Frankfurt, Hong Kong, Tehran, Johannesburg, London, Los Angeles, Male in the Maldives, Muscat, Dubai, New York, Osaka, Sydney, and Tokyo. It has offshore banking units in the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape Town. It also has an ADB in Boston, USA. The Canadian subsidiary, State Bank of India (Canada) also dates to 1982. It has seven branches, four in the Toronto area and three in the Vancouver area. SBI operates several foreign subsidiaries or affiliates. In 1990, it established an offshore bank: State Bank of India (Mauritius).State Bank of India (S.B.I.) Branch at Tsim Sha Tsui, Hong Kong In 1982, the bank established a subsidiary, State Bank of India (California), which now has ten branches – nine branches in the state of California and one in Washington, D.C. The 10th branch was opened in Fremont, California on 28 March 2011. The other eight branches in California are located in Los Angeles, Artesia, San Jose, Canoga Park, Fresno, San Diego, Tustin and Bakersfield. In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the Indo-Nigerian Merchant Bank and received permission in 2002 to commence retail banking. It now has five branches in Nigeria. 19
  20. 20. In Nepal, SBI owns 55% of Nepal SBI Bank, which has branches throughout the country. In Moscow, SBI owns 60% of Commercial Bank of India, with Canara Bank owning the rest. In Indonesia, it owns 76% of PT Bank Indo Monex. The State Bank of India already has a branch in Shanghai and plans to open one in Tianjin. In Kenya, State Bank of India owns 76% of Giro Commercial Bank, which it acquired for US$8 million in October 2005. Associate banks Main Branch of SBI in Mumbai. SBI has five associate banks; all use the State Bank of India logo, which is a blue circle, and all use the "State Bank of" name, followed by the regional headquarters' name:  State Bank of Bikaner & Jaipur  State Bank of Hyderabad  State Bank of Mysore  State Bank of Patiala  State Bank of Travancore Earlier SBI had seven associate banks, all of which had belonged to princely states until the government nationalised them between October 1959 and May 1960. In tune with the first Five Year Plan, which prioritised the development of rural India, the government integrated these banks into State Bank of India system to expand its rural outreach. There has been a proposal to merge all the associate banks into SBI to create a "mega bank" and streamline the group's operations. 20
  21. 21. The first step towards unification occurred on 13 August 2008 when State Bank of Saurashtra merged with SBI, reducing the number of associate state banks from seven to six. Then on 19 June 2009 the SBI board approved the absorption of State Bank of Indore. SBI holds 98.3% in State Bank of Indore. (Individuals who held the shares prior to its takeover by the government hold the balance of 1.77 %.) The acquisition of State Bank of Indore added 470 branches to SBI's existing network of branches. Also, following the acquisition, SBI's total assets will inch very close to the 10 trillion mark (10 billion long scale). The total assets of SBI and the State Bank of Indore stood at 9,981,190 million as of March 2009. The process of merging of State Bank of Indore was completed by April 2010, and the SBI Indore branches started functioning as SBI branches on 26 August 2010. Non-banking subsidiaries Apart from its five associate banks, SBI also has the following non-banking subsidiaries:  SBI Capital Markets Ltd  SBI Funds Management Pvt Ltd  SBI Factors & Commercial Services Pvt Ltd  SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)  SBI DFHI Ltd  SBI Life Insurance Company Limited  SBI General Insurance In March 2001, SBI (with 74% of the total capital), joined with BNP Paribas (with 26% of the remaining capital), to form a joint venture life insurance company named SBI Life Insurance company Ltd. In 2004, SBI DFHI (Discount and Finance House of India) was founded with its headquarters in Mumbai. 21
  22. 22. Other SBI service points SBI has 27,000+ ATMs (25,000th ATM was inaugurated by the then Chairman of State Bank Shri O.P. Bhatt on 31 March 2011, the day of his retirement); and SBI group (including associate banks) has about 45,000 ATMs. SBI has become the first bank to install an ATM at Drass in the Jammu & Kashmir Kargil region. This was the Bank's 27,032nd ATM on 27 July 2012. Logo and slogan  The logo of the State Bank of India is a blue circle with a small cut in the bottom that depicts perfection and the small man the common man - being the center of the bank's business.  Slogans: "PURE BANKING, NOTHING ELSE", "WITH YOU - ALL THE WAY", "A BANK OF THE COMMON MAN", "THE BANKER TO EVERY INDIAN", "THE NATION BANKS ON US". Recent awards and recognitions  Best Online Banking Award, Best Customer Initiative Award & Best Risk Management Award (Runner Up) by IBA Banking Technology Awards 2010  The Bank of the year 2009, India (won the second year in a row) by The Banker Magazine  Best Bank – Large and Most Socially Responsible Bank by the Business Bank Awards 2009€€  Best Bank 2009 by Business India  The Most Trusted Brand 2009 by The Economic Times 22
  23. 23.  Most Preferred Bank & Most preferred Home loan provider by CNBC  Visionaries of Financial Inclusion By FINO  Technology Bank of the Year by IBA Banking Technology Awards  SKOCH Award 2010 for Virtual corporation Category for its e-payment solution  The Brand Trust Report:[12] 11th most trusted brand in Hindustan. Major competitor Some of the major competitors for SBI in the banking sector are ICICI Bank, HDFC Bank, Axis Bank, Punjab National Bank and Bank of Baroda. During the year 2010-11, the Bank introduced 2 new products, namely 'Pushpa Ullas' and 'Arthias Plus' on pilot basis. They made substantial progress in establishing itself as a leading PE fund player of the country. Also, they also signed a Joint Venture agreement with State General Reserve Fund (SGRF) of Sultanate of Oman, a sovereign entity, to set up a general purpose private equity fund with an initial corpus of USD 100 mn, expandable further to USD 1.5 bn. During the year, the Bank opened 576 new branches besides merger of 470 branches of erstwhile State Bank of Indore. Also, they opened 14 foreign offices during the year, taking the total to 156. In July 1, 2010, the Bank launched their 'Green Channel Counter' at select branches across the country. In General Insurance business, the Bank launched limited operations in April 2010 for the Corporate and Mid Corporate customers based at Mumbai, and it was expanded to six other major locations in July 2010. In the Retail segment, the Bank launched their Long Term Home Insurance business at Mumbai in October 2010, which was gradually extended to cover 56 RACPCs and RASMECCs. General Insurance SME business was launched on a pilot basis in Mumbai and Chennai in February 2011. During the first 23
  24. 24. quarter of the financial year 2011-12, the Government of India issued the 'Acquisition of State Bank of India Commercial & International Bank Ltd. vide notification dated July 29, 2011. Consequent to the said notification, the undertaking of State Bank of India Commercial & International stands transferred to and vest in State Bank of India with effect from July 29, 2011. SWOT ANALYSIS Strengths  SBI is the largest bank in India in terms of market share, revenue and assets.  As per recent data the bank has more than 13,000 outlets and 25,000 ATM centres.  The bank has its presence in 32 countries engaging currency trade all over the world.  The bank has a merged with State Bank of Saurashtra, State bank of Indore and the bank is planning to go further acquisition in the current FY2012.  SBI has the first mover advantage in commercial banking service.  SBI has recently changed its vision and mission statements showing a sign of inclination towards new age banking services. Weakness  Lack of proper technology driven services when compared to private banks.  Employees show reluctance to solve issues quickly due to higher job security and customers’ waiting period is long when compared to private banks.  The bank spends a huge amount on its rented buildings. 24
  25. 25.  SBI has the largest number of employees in banking sector; hence the bank spends a considerable amount of its income in employee’s salary compensation.  In spite of modernization, the bank still carries the perception of traditional bank to new age customers.  SBI fails to attract salary accounts of corporate and many government sector employees salary accounts are also shifted to private bank for ease of operations unlike before. Opportunities  SBI’s merger with five more banks namely State Bank of Hyderabad, State bank of Patiala, State bank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are in approval stage.  Mergers will result in expansion of market share to defend its number one position.  SBI is planning to expand and invest in international operations due to good inflow of money from Asian Market.  Since the bank is yet to modernize few of its banking operations, there is a better scope of using advanced technologies and software to improve customer relations.  Young and talented pool of graduates and B schools are in rise to open new horizon to so called “old government bank”. Threats  Net profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in the year FY2011.  This shows the reduction in market share to its close competitor ICICI.  Other private banks like HDFC, AXIS bank etc.  FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tend to switch to foreign banks for better facilities and technologies in banking service. 25
  26. 26.  Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing.  Customer prefer to switch to private banks and financial service providers for loans and mortgages, as SBI involves stringent verification procedures and take long time for processing. 26
  27. 27. DETAILS OF WORKING The whole analysis was done in order to bring out the reasons for low penetration of scholar loan of the bank and to list out the deficiencies of the scheme and find solution for the same. This project examines the efficacy of educational loans of SBI, central branch(BHU) on a sample of 86 respondents in Varanasi city in Uttar Pradesh state of India who have completed their studies from IIT-BHU availing EL during 2012 to 2013 by analyzing the criterion variable, satisfaction level with predictor variables such as the factors influencing the applicability of loans, instability in job market, banks initiative in sanctioning loan, entire processing of the loan , and Would the beneficiary recommend others for EL . For this purpose the data of past year loan applicants and the defaulters (NPA) was examined. The responses of students of IIT-BHU including applicants and non- applicants of the scholar loan scheme of SBI, central branch (BHU) was taken. The fee structure of the college was examined and analysis of the secondary data on scholar loan and reasons for its low penetration was made. I was assigned with the duty to visit the coaching institutes and the IIT department to collect the relevant information regarding this purpose by my project mentor. 27
  28. 28. THEORETICAL FRAMEWORK OF THE STUDY EDUCATION SYSTEM IN INDIA India is fast emerging as one of the biggest knowledge economy of the world. It has one of the largest pools of talent with excellent educational background, qualifying them for numerous higher educational programs in India and abroad. The cost of education is rising. However, their insatiable desire to acquire and enhance knowledge will stand them in good stead, in competitive times. Despite all odds, towards meeting this end, the students are ready to walk that extra mile. The opportunities are abundant; and the avenues to attain a student’s career goals are immense; hence, Indian students want to grab these opportunities and make use of it to their advantage. For achieving their objectives, they are ready to stretch beyond their capacities and means. When their personal financial resources do not provide them with sufficient support, they go for external finance. This is where the role of financial institutions assumes great importance. The Government of India is also lending an active support, by relaxing the norms for granting educational loans to students and pushing the public sector banks to extend loans. MEANING, IMPORTANCE AND TYPES OF SCHOLAR LOAN Scholar loan is a term loan granted to deserving/meritorious students for pursuing full time courses in India at selected premier and reputed institutions identified by the bank. Only because of student loans, most of the students are able to achieve their higher education goals. The students need not ask for monetary help from others while they continue their education. Student loans come to their rescue in meeting with the essential college fees and other educational expenses. The student may be able to repay the loan borrowed after he gets a job after completion of his studies. His pride also is improved when he is able to repay his loan properly. His credit rating also improves. 28
  29. 29. There are two types of student loans which the students can avail. Those are 1. Private student loans 2. Federal student loans Private student loans are given by private lenders or by the educational institutions where the student undergoes education. The rate of interest will be higher than the federal student loan. Federal student loans are provided by the federal government and the rate of interest may be low or free. So, the federal Government student loans are more beneficial to the students looking for a student loan than the private student loan which has high interest rate. Student loans play a vital role in helping the students come out of financial crisis in pursuing their educational dreams. In this economic situation, the parents of the students find it very difficult to fund their children’s education. Due to the finance problem, many of the meritorious students have to quit their education. So, taking student loan can help them in coming out of this crisis. 29
  30. 30. SBI AID FOR MERITORIOUS STUDENTS SUMIT BHATTACHARJEE Girl students are given a concession of 0.5 per cent on loan interest An admission into a good institute, be it the IITs, NITs, IIMs or for that matter any of the other top B-schools, is no more an easy proposition when it comes to the fee structure. The fees could range from Rs. 4 lakh to Rs. 15 lakh, which is certainly not easy money for the middle class and weaker sections of society. In the past, many meritorious students have missed the bus due to financial constraints. But now, things are different. Banks and financial institutions have come forward to see that deserving students do not miss the bus. In tune with this attitude, State Bank of India has initiated a scheme called SBI Scholar Loan Scheme. The basic purpose of the loan is to extend financial assistance to deserving and meritorious students for pursuing full-time courses in select premier institutes of the country. The scheme is divided into three segments. List ‘A' comprises the seven IIMs (Ahmedabad, Bangalore, Kolkata, Indore, Lucknow, Kozhikode and Shillong). The loan facility under List ‘A' is extended up to Rs. 15 lakh. List ‘B' covers all IITs and other top technological institutes and B-schools such as FMS-Delhi, IIFT (Delhi and Kolkata), IMTGhaziabad, Narsee Monjee Institute of Management and Higher Studies, XIM-Bhubaneswar, MDI-Gurgaon, BITS-Pilani, CMC-Vellore, AFMC-Pune, JIPMER, IIFM-Bhopal, TISS-Mumbai and MICA. The loan facility under this list extends up to Rs. 10 lakh. List ‘C' covers all NITs and institutes such as National Law School-Bangalore, CMC-Ludhiana and BITS-Hyderabad. The loan facility under this list extends up to Rs. 7.5 lakh. 30
  31. 31. The student should be an Indian national and have secured admission through the required entrance test and selection process. The repayment schedule begins after one year of completion of the course or six months after getting a job, whichever is earlier. Interest rate There is no margin money for a loan up to Rs. 4 lakh and it is 5 per cent for loans over Rs. 4 lakh. The interest rate is 2.75 per cent above the bank base rate and at present it is 12 per cent. Girl students are given a concession of 0.5 per cent. The students also can get a reduction on rate by 1 per cent if the loan is serviced promptly during the moratorium period. And there is no processing fee upfront.The students need not produce any form of security, except that the parents or guardian or parent-in-law have to stand as co-borrower. The loan covers fees payable, hostel fees, examination, library and laboratory fees, caution deposits, purchase of book and equipment, travel, purchase of computer and other expenses such as tours and project works. SBI SCHOLAR LOAN SCHEME Eligibility Sanction of Term Loan to students (Indian Nationals) for pursuing higher education in India in the Select 114 Premier Institutions Education Loans for Students securing admission in the country’s best Engineering and Medical colleges, top B-Schools, Law colleges & other reputed institutions Courses Covered Regular full time Degree /Diploma Courses through entrance test/ selection process. Full time Executive Management Courses like PGPX are also covered. No Certificate/ Part time courses are covered under this scheme. 31
  32. 32. Salient Features  Loan at Designated Campus Branch for the respective Institution or a Branch of  MMGS-III and above incumbency as per the convenience of the student/ parent Option to transfer loan account to a branch closer to the place of co-borrower (after the completion of course but before commencement of repayment)  ATM-cum-Debit card and Internet Banking facility  Second Education Loan for further higher studies provided the institution and cost of study fall within the criteria for Scholar Loans. Combined loam amount should not exceed the maximum permissible loan amount under SBI Scholar Loan Scheme. Loan amount & Security Category Maximum Loan Limit No Security, With only tangible Parent/ collateral of full Guardian co-borrower as value and Parent/ Guardian as coborrower List ‘A’ Rs. 20 lacs Rs. 30 lacs Rs. 7.5 lacs Above (53 institutions) List ‘B’ Rs. 7.5 (61 institutions)  Lacs & upto Rs. 30 Lacs In case of married person, co-obligator can be either spouse or the Parent(s)/ Parent(s)-inlaw. Parental co-obligation can also be substituted by a suitable third party guarantee.  Loan amount varies with the institute. 32
  33. 33. Expenses covered  Fees payable to college/school/hostel  Examination/ Library/ Laboratory fees  Purchase of books/equipments/instruments  Caution deposit / building fund/ refundable deposit supported by Institution bills/ receipts [not to exceed 10% of the tuition fees for the entire course].  Travel expenses/expenses on exchange program*  Purchase of computer/laptop*  Any other expenses related to education* * No voucher/ receipt insisted upon. Purpose (end use) need to be self-certified for these expenses. Such expenditure (without voucher/ receipt) will not exceed 25% of the loan amount(upto a lumpsum amount of max Rs. 1 lac). If any expenditure for these purposes is required to be made beyond the 25% cap, it can be permitted subject to production of voucher/ receipt. Interest Rate A) 200 BPS above base rate 12% at present. Our effective rate however, will be 11% p.a., if the interest is serviced during course period and moratorium. B) 1) Simple interest to be charged during moratorium/repayment holiday. 2) Interest concession of 1% for the entire period of loan if the interest is serviced during course period and moratorium. 3) 0.50% additional concession in interest available for girl student. Repayment  Course Period duration plus six months moratorium  Repayment period upto 12 years. 33
  34. 34. Margin - Nil Processing Fee - Nil Documentation Required  Letter of admission  Completely filled in Loan Application Form  2 passport size photographs  PAN Card of the student and Parent/ Guardian  Proof of identity (driving licence/passport/any photo identity)  Proof of residence (driving licence/passport/electricity bill/Telephone bill)  Statement of cost of study  Student/Co-borrower/ guarantor’s bank account statement for last 6 months  IT return/ IT assessment order, of last 2 years of Parent/ Guardian/ other co-borrower  Brief statement of assets & liabilities of Parent/ Guardian/ other co-borrower  Proof of income (i.e. salary slips/ Form 16) Parent/ Guardian/ other co-borrower 34
  35. 35. LITERATURE REVIEW EDUCATIONAL LOAN PROGRAMS IN OTHER COUNTRIES In this section, an attempt is being made to study the distinguishing features of educational loan schemes across the world and their rates of return Actually, a successful support program (or government supported scheme of educational loans) needs to be targeted effectively to those who are deemed most deserving of support. Without effective targeting, growing enrolments on one hand and less- than-full –loan recovery on the other hand, will put unsustainable pressures on the limited loan funds. Many student loan programs are open to all students regardless of need or ability, as in case of Ghana and Kenya in Africa. In case of UK and Australia also, all students have access to credit, regardless of income. But open access can be expensive to governments, particularly if support is subsidized (if rate of interest is charged lesser than the market rate of interest). In the US, support is available to students below the specified income threshold. Alternatively, loan amounts can vary according to the difference between an individual’s available resources and the costs of a given course of study, as in Canada, Barbados, Brazil and Sweden. In Norway, Netherlands and Sweden, this assets & income of the students above/over 19 years of age are assessed independently as they are treated as financially independent. But this same requirement in many developing countries has enabled students from wealthier families to benefit enormously from student support, simply because students at age 19 are unlikely to have their own sources of income. Access to support can be based on student’s performance, either at secondary school or University, as it gives a strong performance incentive. In Indonesia, students were eligible for loans as they approached graduation, only after proving their academic ability. In Venezuela and Honduras, a student failing to receive minimum grades will lose access to loan support and must begin repayment of loans immediately. There is a concern, however, that the use of ability criteria would result in the selection of wealthier students with access to better educational facilities. In case of India, the Education Commission also recommended a rigorous test of 35
  36. 36. admission at post-graduate stage along with adequate scholarship-cover for 50 percent of the students supplemented with loan-scholarships way back in 1966. The Program of Action on the National Education Policy (1992) also favored support to meritorious students as it also recommended an elaborate and effective system of providing freeships, scholarships and loans to students belonging to the weaker sections of society. The major problem that has plagued the finances of most of the student loan programs has been the failure of many students to repay their debt. Default on the part of the students can be divided into two parts: 1) Students who cannot pay, and 2) who evade payments. Appropriate arrangements need to be made for checking the deliberate evasion from repayment of loan. Therefore, choosing an appropriate collection institution is central to effective recovery. Banks and tax systems have the necessary infrastructure to collect repayments. In Venezuela, the student loan program operated by the national savings bank (BSNAP) does not suffer from problems of default, while the public agencies face much greater problems. Non-payment was merely 5% in case of Honduras, where private agencies were used to locate students and collect money. ICETEX in Colombia passes on additional charges for such services to the students. As a result, students now are reluctant to default on their loan in Colombia. The lowest loan default states have been in Sweden, Hong Kong and Quebec, where students are exempted from payment (while still accruing interest charges) when a graduate’s income falls below a threshold level. Same is the case in U.K, where students have to submit proof that their income is below the threshold level. In Ghana, each borrowing student must have two guarantors who are wage earners (and thus traceable by the government) in order to avail the loan facility. The French government has proposed a student’s loan program that would require student to make small payments each year even while they are borrowing (a way to remind them of their loan obligation). If a student fails to make any payment, the loan is cut off. The present scheme of educational loans in India- Education Loan Scheme - is not much different from such schemes offered in other countries as all aim at full/near-full recovery of loans. Here scheme is run 36
  37. 37. through commercial banks and there is no involvement of any private agency like Colombia and Honduras. EDUCATION LOAN IN INDIA Educational loans form a part of the priority sector advances of the public sector banks and they are taken mostly for pursuing higher education. Education loan scheme came into focus to raise access ratio in higher education. Educational Loans in India have become available to the needy students by the introduction of the Educational Loan scheme of the Public Sector Banks in India in 2001. The private sector and cooperative sector banks also joined the fray. Securing education loan in India may sound easy, but is full of obstacles, and formalities. Government, in order to facilitate loan disbursal has simplified the norms; but, still there remain many more in place, that come in the way of a student getting educational loan. Some of the challenges faced by students as well as banks, includes customization of loan product to suit the requirements of the students and that of courses; margin money requirements; collateral security sufficient enough to cover the loan amount; proof of appropriateness of the University, College and Course applied for; timely approval of loan to meet the admission related deadlines; post disbursal issues etc. These activities consume a lot of energy, time, effort and money. The financial institutions use all relevant information available from different sources, and with the help of credit scoring models, do the credit profiling of the student. This helps it, in working closely with students and parents to try and design appropriate education loan program for them. One main reason for inadequate access to education in India is the high cost of education and lack of access to funding higher education. As per available data, over the years the government’s share in overall education expenditure, which was 80 percent in 1983, went down drastically to 67 percent in 1999. The government spending as a percentage of GDP was a paltry 0.7% in the year 2008. This shortfall has been made-up by the private sector expenditure on education, which has increased by about 11 times in the last 15 years (Singh and Kaur 2008). With the introduction of private player in education sector, the motive of revenue generation seems to have overtaken the social cause. 37
  38. 38. This has probably led to a significant increase in the cost of pursuing higher education; resulting in, things getting out of reach of the masses. This has further led to the students looking for funding their higher education from external sources, like government and private sector banks, to meet their high education expenses. But this is easier said than done. Not all the students are fortunate to get the benefit of educational loans from banks. This not being a profitable business idea, the banks are reluctant to extend the study loans. According to a study by ASSOCHAM, less than 3 percentage students, mostly belonging to middle income families in India avail of education loans against 85 per cent in the UK, 77 per cent the US and 70 per cent in Germany and France. Many students desirous of pursuing higher education complain about difficulty in obtaining approval of educational loans by banks. The cost of postsecondary education has increased faster than average incomes, making college less affordable for many students. Contributing factors include increased student demand, a relatively stable institutional supply, and declining state support. The national average cost for tuition at a public university has increased about 31 percent, after inflation, over the last 5 years. However only about half the increased costs over the last decade nationally have been covered by grant aid. A recent poll by the Public Policy Institute of California (PPIC) found that 84 percent of California residents agreed that affording college is a problem for students, and two-thirds of adults agreed that the cost of college “…prevents qualified, motivated students from pursuing higher education.” Housing costs, tuition, and fees were most often cited as the major problem. According to the College Board, the average cost of college (including books, travel, housing, etc.), based on 2007-08 academic year costs, is: About $54,000 for a four-year in-state degree at a public college $122,000 for a four-year degree at a private college $2,261 a year for community colleges (students live at home) $12,089 a year at a for-profit proprietary school 38
  39. 39. California has the lowest costs nationally for public two-year postsecondary schools in its community college system: $633 (tuition and fees) a year for the academic year 2007-08, a 13 percent decrease from 2006-07.16 The U.S. Department of Education compared average undergraduate college costs for public four-year institutions, by state, for 2002-03. Eleven states had higher average four-year undergraduate college costs than California, which averaged $10,849 at that time. The highest was Vermont at $14,016, followed by New Jersey at $13,937, Pennsylvania ($12,944), Maryla($12,332), Rhode Island ($12,266), Ohio ($12,260), Connecticut ($11,805), Delaware ($11,523), Michigan ($11,408), Illinois ($11,027), and New York ($10,984).17 6 California Research Bureau, California 39
  40. 40. FINDINGS FROM RESEARCH STUDIES CONDUCTED IN INDIA AND ABROAD Albretch and Ziderman (1995) analysed the government supported deferred-cost-recovery programs of twenty different countries on the basis of rate of return of these schemes, results of which are summarised below: In only six loan programs the loan recovery ratio exceeded 50 percent (in case of Colombia’ Hong Kong, UK, Norway, Barbados & Sweden) In ten programs the loan recovery ratio was 30 percent or less (Chile, Honduras, Jamaica, Brazil, Indonesia, Venezuela, Kenya, Sweden etc.)Carlson (1992) presents broadly the similar results of loan recovery for selected loan schemes from Latin America. Taking account of loan repayments, default and administrative costs, he estimates overall loan recovery of 52% for both Chile (1989) and Colombia (1985), 34% for Brazil (1989), 30% for Jamaica (1988) and 27% for Honduras (1991). They concluded that the financial efficacy of any loan scheme depends certainly on the ‘loanrecovery-ratio’: the extent to which loan is repaid in full, or in other words how much cost of burden of higher education is borne by the government. According to them, a successful support program needs to be targeted effectively to those who are deemed most deserving of the support. Without effective targeting, growing enrolments on one hand and less- than-full –loan recovery on the other hand, will put unsustainable pressures on the limited loan funds. 40
  41. 41. Tilak (1996) found many of the arguments made against student loans to be valid in India; and therefore, he did not lend support in favor of student loans. Student loans, without any carefully formulated policy, may affect the access and equity adversely. Even American critics of student loans express their apprehensions in this regard while saying that student loans may lead to inequality of access by restricting participation of (ethnic) minorities in higher education. He visualized student loans as a method of generating finances for higher education than a measure to improve access & equity. The Review Committee on NPE’ 1986 recommended introduction of institutional loans, while raising fees in higher education sector, as a strategy for releasing pressure on the government kitty. Though it agreed that such an arrangement is the need of the hour, yet it mentioned that educational loans do involve certain problems in India. They were mentioned as3) Psychologically, people are against loans. 4) Credit markets are not developed. Through the survey of literature it is evident that governments around the world used to bear a large part of expenditure on higher education. Actually, in almost all the countries, including India student loans used to be seen as a measure to ensure the protection of weaker sections from the effects of high user charges, in spite of the above mentioned problems. The budgetary strains brought wide change in the financing patterns. Gradually, the debate shifted from ‘Should there be increased reliance on private sector and other sources?’ to ‘What is the reasonable balance between the state, student and private sector?’ Consequently, there arises need to look out for mobilization of additional sources like philanthropy, endowments, business contributions, taxing corporate sectors etc. The increased cost recovery needs to be accompanied with student loans. The government sponsored education loan schemes are no longer there. The interest charged on education loans is equal to or higher than the market rate of interest. More recently, this social consideration has got a backseat and the financial efficacy has become the most important issue. From the analysis of this paper it can be concluded that a student pursuing postgraduate professional courses is more likely to get education loan than a student pursuing undergraduate course. Similarly, banks prefer giving loans to students seeking admission in government owned/approved institution. However, there does not seem to be any discrimination between 41
  42. 42. students with or without prior work experience, for getting education loan. The study further reveals the reluctance of private sector banks in extending loans. This paper is useful to aspiring students. The problem of default is worse, in the case of overseas education; as students change their address without informing the bank (Vidyalaxmi 2006). The Reserve Bank of India is giving thrust on extending educational loans and the government has proposed to take over the interest burden during the moratorium period, for students from families, whose income is less than 2.5 lakhs per-annum; besides, banks prefer giving loans to meritorious students in order to be doubly sure that the applicant will not turn into a defaulter (Ghosh and Mousumi 2008). Education being the priority sector, orders are issued by the government from time to time, to keep the interest rates on loans very low. This makes it less profitable business, simultaneously loaded with risk of default. This explains the behavior of private sector and foreign banks in India, to virtually ignore this segment. Available literatures reveal that default rate on education loan is a perennial problem across globe; especially, when the students leave the country for pursuing higher studies abroad, the risk of default increases further. Here, the students‟ annual family income plays an important role in determining, whether he is extended education loan or not. In such cases either of the parents is made the co-borrower, thus drastically reducing the chances of default. Further analysis revealed that private banks do not prefer giving education loan. Interest rate on these loans is very low, even lower than the prime lending rates. Low lending rates coupled with higher risks of default does not make it a sound business model; hence the reluctance. However, the government is bound by political agenda to increase expenditure on education sector and promote higher education. Hence, the public sector banks being under the control of government do not have an option, but to extend loans to students. Some of the financial institutions, to overcome the problem of default, use all relevant information available from different sources, 42
  43. 43. and with the help of credit scoring models, do the credit profiling of the student vis-à-vis the educational institution. This helps it, in working closely with the students and their parents to try and design appropriate education loan program for them. B Thus, it can be concluded that a student is more likely to get education loan if he approaches a public sector bank. Additionally if the student has a higher family income and plans to pursue postgraduate professional study from a government owned / approved institution the chances of getting educational loan is phenomenally higher. RESEARCH GAP As it is evident that the original scheme of educational loans i.e. National Loan Scholarship Scheme was initiated in India in the year 1963 and it continued till 1991. This government sponsored National Loan Scholarship Scheme proved to be a failure when assessed in terms of recovery of loans. Moreover, the economic crisis facing Government of India in the early nineties necessitated the winding up of the scheme. Hence, it was dropped in the beginning of the nineties. At the same time, it was realized that a similar type of educational- loan scheme was required to cushion the impact of rising user-charges in India. Accordingly, a new scheme of education loans, namely, Education Loan Scheme, was started. The main tenet of the scheme was its economic viability. Furthermore, the distinguishing feature of education loan schemes and their rate of return, across the world was found. Through a survey of literature, we have studied various arrangements/schemes of educational loans and their problems in different countries and the previous scheme of educational loans in India. But no study is available on the present scheme i.e. Educational Loan Scheme (2001) in India. Therefore, this paper is a humble attempt to study a) its growth and performance or increase in the amount of educational loans; b) about the beneficiaries of the scheme, c) deficiencies in the scheme, and d) effective measures to overcome the deficiencies. 43
  44. 44. RESEARCH METHODOLOGY OBJECTIVES: The objectives of this study are:  To identify the reasons for low penetration of scholar loan.  To analyze the prerequisites looked for by the government as well as public and private sector banks for grant of educational loans to students for their higher studies in India.  To identify the factors influencing the banks and the students for sanction and application of educational loans respectively.  To identify the problems faced by applicants; background of the problematic borrowers and steps taken to overcome the problems in getting loans.  To make recommendations to improve the operational effectiveness of, and to maximize recovery opportunities of scholar loan. SCOPE The present study focuses on the Educational Loan Scheme of State Bank of India. Consequently, the focus of the paper is on the growth & distribution of educational loans; socioeconomic characteristics; the problems of educational loanees; findings & limitations of the study; and the strategies to make the scheme more effective. The purpose of the study was to target the students of IIT-BHU who have applied or consulted for the loan before and have passed out along with those who are still pursuing their studies in the college. The students also included those who have not applied for the loans in order to find the deficiencies of the scheme and initiatives of the bank and to know the reasons of Students reluctance towards applying for loan. In addition to this various information regarding growing default rates in loans and loaning officer’s view was also taken which was responsible for the low penetration of education loan 44
  45. 45. through way of discussion. Secondary data was also one of the sources to identify some of the reasons regarding this. TIME PERIOD A survey has been conducted on the beneficiaries of the Educational Loan Scheme run through the state bank of India in the year 2012 and is inclusive of all cases of educational loans available with these banks till 2012. 45
  46. 46. RESEARCH DESIGN The data used in this study was collected from primary sources and 86 students through structured questionnaire based on fieldwork conducted during June 2013 using convenience sampling. The study covered the different departments of IIT-BHU in Varanasi, Uttar Pradesh. Since, the problem of low penetration of scholar loan exist in IIT-BHU which is offered scholar loan from the campus designated branch of BHU and a deep concern is required over it so it was chosen as the representative of the study. For testing the questionnaire a survey was conducted. It got 86 responses, out of which 15 are beneficiaries of study loan and rest are non- beneficiaries i.e., those applied for scholar loan but did not get the same and those who never applied. The target group of beneficiary and non beneficiary respondents is UG and PG professional students of various department of IIT-BHU in Varanasi. Finally the questionnaire is designed based on objective of study. PHONE INTERVIEWS These were conducted with students based on preliminary findings for the purpose of learning their experiences in relation to the issue. The students offered both suggestion on improving the deficiencies of scholar loan scheme and information about the entire processing. 46
  47. 47. DATA ANALYSIS AND INTERPRETATION TABLES AND CHARTS Note: Here, the letters denote following things: SD- strongly disagree ; D- disagree; N- neutral; A-agree; SA- strongly agree. 31.03% of students disagreed that the bank takes initiative in creating awareness about the scholar loan among the students and only 2.3% of the students strongly agreed with this, while 22.1% agreed with this. 47
  48. 48. 36.05% of students strongly disagreed that the bank uses campaigning and other promotional tools to convince the students to take scholar loan with only 1.2% who strongly agreed and 12.8% who agreed 48
  49. 49. 37.2% students strongly disagreed that the Loan officer of the bank visits the campus personally & regularly with only 4.7% who strongly agreed. 49
  50. 50. Majority of 46.5% students agreed that the Bank holds good relationship with the institute with only 2.3% who strongly disagreed. 50
  51. 51. 31.4% of students agreed that a lot of paperwork is required in the process of getting scholar loan, with only 2.3% who strongly disagreed and majority of 37.2% were neutral. 51
  52. 52. 23.3% of the students agreed that the bank gives satisfactory reasons for rejection of any scholar loan application with only 4.7% who strongly disagreed and majority of 51.2% who were neutral. 52
  53. 53. 14% of students strongly agreed that IIT-BHU provides enough scholarships to needy and meritorious students, while majority of 25.6% were neutral on this and 23.3% disagreed with this. 53
  54. 54. 38.4% of students agreed that they would recommend others about the scholar loan from the Bank, while 11.6% of students strongly disagreed. 54
  55. 55. 19% of the students agreed that the bank causes unnecessary delay in sanctioning of scholar loan, while only 7% strongly disagreed and 54.7% were neutral. 55
  56. 56. 29.1% of the students agreed that low fee structure is the reason for low penetration of scholar loan in IIT- BHU, while only 5.8% of them strongly disagreed. 56
  57. 57. 43% of the students agreed that Scholar loan is taken because of the evolving psyche of Independence (wanting to fund your own studies), while only 3.5% of them strongly disagreed. 57
  58. 58. 33.7% of the students agreed that changes are required in the process of getting scholar loan, while only 2.3% strongly disagreed. 58
  59. 59. 29.1% of the students agreed that the students are reluctant to take scholar loans due to instability in Job market in recent years, while there were 27.9% who disagreed with this and 8.1% of them strongly agreed with it. 59
  60. 60. 28% of the students agreed that rural people and those with no contact in the bank are not dealt properly and ignored, while only 5.8% who strongly disagreed and majority of 30.2% were neutral 60
  61. 61. Note: Here, the letters denote following things: L- least important U- unimportant N- not important I-important M- most important 61
  62. 62. 62
  63. 63. 63
  64. 64. 64
  65. 65. 65
  66. 66. 66
  67. 67. 67
  68. 68. 68
  69. 69. 69
  70. 70. 70
  71. 71. 71
  72. 72. Background of your habitant Frequenc Percent Valid y Percent Rural Urban Vali Semi d Urban Total Cumulative Percent 17 35 19.8 40.7 19.8 40.7 19.8 60.5 34 39.5 39.5 100.0 86 100.0 100.0 72
  73. 73. Guardian's Occupation Govt Job Pvt Job Business Valid Agricultur e Total Frequenc Percent y 37 43.0 Valid Cumulative Percent Percent 43.0 43.0 12 26 14.0 30.2 14.0 30.2 57.0 87.2 11 12.8 12.8 100.0 86 100.0 100.0 Family's monthly income <20,000 20,000Valid 40,000 >40,000 Total Frequenc Percent y 26 30.2 Valid Cumulative Percent Percent 30.2 30.2 23 26.7 26.7 57.0 37 43.0 43.0 100.0 86 100.0 100.0 73
  74. 74. 74
  75. 75. Are you satisfied with the behavior of the staff during the processing of the loan? Yes Valid No Total Frequenc Percent y 40 46.5 46 53.5 86 100.0 Valid Cumulative Percent Percent 46.5 46.5 53.5 100.0 100.0 Are you satisfied with the way in which your queries are/were responded regarding scholar loan? Frequenc Percent Valid Cumulative y Percent Percent Yes 40 46.5 46.5 46.5 Valid No 46 53.5 53.5 100.0 75
  76. 76. Total 86 100.0 100.0 76
  77. 77. 46.5% of the students were satisfied with the behavior of the staff during the processing of the loan and with the way in which their queries are/were responded regarding scholar loan and majority of 53.5% of students were not satisfied. The time taken to disburse the loan after submission of the application form ranged from 5 days to 6 months during the year 2012. 77
  78. 78. The family’s monthly income included 30.2% below 20,000, 26.7% between 20,000-40,000 and 43% above 40,000. 78
  79. 79. DATA ANALYSIS AND OBSERVATIONS Education loan seems to be an effective way to fund higher education. These are offered by government, public and private sectors banks. Out of 86 respondents 15 are beneficiaries of education loan. Demographic and social status of the students The empirical study covered 86 respondents consisting of 62 students who are still continuing their studies and the remaining 24 who have completed their studies. The sample of 86 students was comprised of 17 students from rural area, 35 from urban and 34 from semi-urban area. 30.2% of the students’ parents were in business, 12.8% in agriculture, 14% in private job and a majority of 43% in government job. The family’s monthly income included 30.2% below 20,000, 26.7% between 20,000-40,000 and 43% above 40,000. Courses pursued for study Courses pursued by the EL beneficiaries were: B.Tech and, Engineering in various disciplines. Range of Loan and Interest rates The ELs ranged from Rs 2, 25,000 to Rs 4, 20,000. The total sum borrowed by 15 students amounted to Rs 26, 73,000. Out of the 15 samples, 9 were the beneficiaries for the year 2012, 3 of 2009, 2 of 2008 and 1 of 2006. About 46.7% of the borrowers availed loans below Rs 2,80,000. The loans were issued at 12.45-12.95% interest rates. 79
  80. 80. Satisfaction level of the students Analysis of the criterion variable, satisfaction level of the students with predictor variables such as the factors influencing the applicability of loans, instability in job market, banks initiative in sanctioning loan, entire processing of the loan , and would the beneficiary recommend others for EL ,has been done. Out of 86 respondents the responses turned out as above. The interpretation given above is mostly based on majority and minority of responses. These were considered as the important factors by the students in order to go for scholar loan from bank. The sequence ranges from percentage of highest level of preference to lowest level: 1. Documentation required. 2. Terms and conditions for scholar loan. 3. Proof of appropriateness of the institute/ course. 4. Collateral security requirements. 5. Grace period given by bank, Quality of service offered by bank. 6. Customization of loan products, Speed at which loan is approved, and Cost of credit. 7. Behavior of employees of the bank. 8. Ease of entire process of getting scholar loan 80
  81. 81. FINDINGS 1) Procedures to get this aid are very cumbersome. Applications of students are turned down if they are unable to pay collateral security. 2) Terms and conditions for collateral security are very strict and not people friendly. 3) Much consideration is given on the ability to repay(in terms of mortgages, security and collateral arrangements) than either by educational merit or by economic needs of the students. 4) Proper promotional initiatives and awareness programs are not being carried. 5) Lot of paperwork and documentation makes the process complex and time consuming. 6) Lack of effective targeting of the students. 7) Increasing defaults on the part of students. 8) No assurance of availability of government subsidies on time. 9) Students are not satisfied with the way in which they are dealt. 10) The social consideration has got a backseat and the financial efficacy has become the most important issue. 81
  82. 82. SUGGESTIONS 1) Bank should work on promoting and creating awareness about the scholar loan scheme among the students. 2) Bank should provide the true and fair information about the scheme to the borrowers in detail and should not hide the sensitive points and make those points clear which threatens the borrowers and result in withdrawal of their application. 3) Lot of paperwork must be replaced by more and more online access, thereby reducing the complexities and time consumption of the process. 4) The verification and the sanctioning process of the loan should be made quick and unnecessary delay should be avoided. 5) Students should be seen as clients for long term. 6) Those who work in India after the course and those who work in government job can be extended redemption of a certain percentage of their EL outstanding as loyalty rewards. 7) Students should be provided with the satisfactory reason for their rejection of scholar loan within 15-30 days. 8) Terms and conditions for scholar loan scheme and collateral security should be made flexible. 9) Provision for softer loan scheme should be made for the needy groups and weaker sections of the society. 82
  83. 83. 10) The loan scheme should not be based on only commercial basis but on the socioeconomic cause. 11) Effective targeting needs to be done to those who are deemed to be the most deserving for the scheme and not to those regardless of the need, ability and income so that unnecessary pressure is not exerted on the limited loan funds. 12) Access to support should be based on performance. 13) Appropriate check should be made for deliberate evasion of payment. An appropriate collection institute, necessary infrastructure and private agencies are good tool of recovery. 14) Borrowers should be forewarned about the employability of the course by the loan sanctioning authority. 83
  84. 84. CONCLUSION Education loan has always been a source of and support to fund higher education because of the higher education charges of the approved institutes, and so is the reason which does not exists with IIT-BHU. Its fee is Rs 14000 per semester that most of the students find it within their range and affordable to pay. Experts believe that getting a loan sanctioned by a bank, whether it is to pursue a degree abroad or from a premier institute in India is not difficult for a meritorious student. Banks have various education loan schemes for various courses in India. They prefer giving loans to meritorious students in order to be doubly sure that the applicant will not turn into a defaulter. Thus, stringent checks about both the academic background of the student and the credibility of the institute that he or she is applying to are undertaken to avoid any trouble. But this motive now seems to gain a profitable cause and still many of the deserving candidates are unable to avail this facility. From the survey it can be concluded that the bank is reluctant towards taking initiative against scholar loan because of the poor recovery ratio of the loan and they are considering the repayment factor more rather than the socio-economic factor while sanctioning of the loan. Banks seem to be discriminating too much between a student belonging to rural background or with no contact in the bank and a others. Available literatures reveal that default rate on education loan is a perennial problem across globe; especially, when the students leave the country for pursuing higher studies abroad, the risk of default increases further. Here, the students‟ annual family income plays an important role in determining, whether he is extended education loan or not. In such cases either of the parents is made the co-borrower, thus drastically reducing the chances of default. Further analysis revealed that mostly the private banks are reluctant to extend education loan because of low lending rates coupled with higher risks of default but the public sector banks being under the control of government do not have an option, but to extend loans to students. Some of the financial institutions, to overcome the problem of default, use all relevant information available from different sources, and with the help of credit scoring models, do the credit profiling of the student vis-à-vis the educational institution. This helps it, in working closely with the students and their parents to try and design appropriate education loan program 84
  85. 85. for them. Thus, it can be concluded that a student is more likely to get education loan if he approaches a public sector bank. Additionally the above mentioned factors that are important for the students to go for scholar loan should be taken care of and a deep concern is required over it to make the scheme more effective. LIMITATION  Lower accessibility of student loan applicants for interview and questionnaire administering process.  Non availability of data on changes in policies of the scheme and interest rates along with the respective year’s student loan applicants data for the study of buyer behavior.  No prior research regarding the research topic so less information available.  Half of the contact details of the past year student loan applicants available from the record of the bank was not valid and not in use. 85
  86. 86. BIBLIOGRAPHY International Journal of Management and Strategy (IJMS) 2011, Vol. No. I, Issue 3, July-Dec 2011 ISSN: 22310703 Sri Krishna International Research & Educational Consortium GRA - Global Research Analysis X 103 Advisory Committee on Student Financial Assistance 86