Sie sind auf Seite 1von 164

EDUCATION LOANS BY COMMERCIAL BANKS IN INDIA

ACKNOWLEDGEMENT
The successful completion of this project marks the beginning of an ever going learning experience of converting ideas and concepts into real life, practical systems. This project along with the knowledge enhancement has provided various useful professional life experience. It would be worthwhile here to mention the contributions made by people around me leading to successful completion of this project. I am highly indebted to all those who have helped me in my sincere endeavor and spurred in me the drive to achieve something worthwhile and enduring. I thank my Project Guide Mr. Pramod Sharma, who with her unfailing guidance, encouragement and support helped me to successfully compile this project despite her busy schedules. I would also like to express my warm gratitude and thanks to the respondents who lent me their time and answered my queries.

Amit Singh

Rakesh Pratap

CERTIFICATE

The project entitled Educational Loans by Commercial bank In India submitted by Rakesh Pratap in partial fulfillment of two year full time Post Graduate Program in Management is a record of original work carried out by her under my guidance and supervision. The work has not been submitted elsewhere for award of any degree or diploma.

Rakesh Pratap
Id no- Del /fin/ss05692

Prof. Ravinder Kumar

TABLE OF CONTENTS

S No. 1 2 3 4

TOPIC
Acknowledgement Certificate Executive Summary Chapter One 4.1 Rationale 4.2 Objectives Chapter two Education

loan 5.1 Education loan Scheme Chapter three Education Loan Industry 6.1 Education Scenario in India 6.2 Availability of Education Loan at Banks 6.3 Loan sanctioning Procedure 6.4 Important questions asked Chapter four Theoretical Framework Chapter five reviews Chapter six Methodology
5

7 8 9

Literature Research

10 11 12 13 14

Chapter seven Chapter eight conclusion Chapter nine Chapter ten Bibliography Chapter eleven Questionnaire

Data Analysis Findings and Limitations

Annexure

Executive Summary

India is home of 16% of the worlds population accommodated in an area of 2.42% of worlds total land area. India spends nearly 3.8% of its GNP on education and has 46% of its population aged 15 years and above as illiterates while China which is the worlds most populous country spends 2.6% of its GNP on education and has only 22% of its population aged 15 years and above as illiterates.

The problem of illiteracy in India is due to the unavailability of funds for studies. Most parents are unable to provide higher education to their brilliant children because of paucity of funds.

In such scenario educational loans is a relief. These loans are gives by most banks at nominal rates of interest with comfortable repayment schedules.

Educational loan schemes available at the nationalized banks can play an important role in bringing the higher education within reach of the poor and middle class families. The need for raising the satisfaction level of the beneficiaries of these Schemes assumes special significance in the present context. Through

this study the need is to identify what are the expectations of customers out of these schemes how much banks are successful in satisfying them.

This study has given an insight into the educational loan schemes offered by banks in India. It has also helped to know how various procedures to acquire these loans and above all to find out if the beneficiaries are satisfied with the scheme i.e. to examine the eligibility conditions, formalities and procedure followed for sanctioning the loans by banks .An insight is also provided as to what are the expectations of the beneficiaries and to assess whether they are satisfied with the operation of the educational loan schemes. Finally the objective is to identify what are the gaps in customer expectations and services offered by bank.

RATIONALE

There has been a phenomenal growth in higher educational institutions in the country since Independence. One of the important gains of Independence in India was that it could develop the necessary infrastructure for providing education to the people right up to university level in reasonably short period of time. More significant aspect of this development is the fact that cost of education has been sufficiently low with the result that even the poor families could afford to educate their children adequately. The Central Government and almost all the State

Governments had instituted a number of scholarships and fellowships, which became available to meritorious students and enabled them to continue their higher studies.

In course of time, the cost of education started rising. The Central Government announced in 1963-1964 a modest scheme of National Loan Scholarships, which remained in operation for about 25 years. This Scheme however did not serve the purpose because it sought to cover a very large segment of educational sector beginning with higher secondary stage. The amount provided to a scholar under the Scheme was inadequate (Rs.50-150 per month) and the recoveries were very poor. Later, the Central Government introduced a number of loan schemes for

10

educational courses through leading nationalized banks.

Some private

organizations also came forward with similar schemes to enable the needy students to continue their education. However, over a period of time, with rise in fees and living expenses the higher and technical education no longer remained within the reach of the poor and even middle class families.

Since the benefits of scholarships, fellowships etc. provided by the Government and private organizations is restricted only to a limited number of meritorious students, the facility of educational loans provided by the leading nationalized banks assumes special significance. However there is general feeling that the

beneficiaries of educational loans have to complete a large number of formalities, some of which are rather harsh for the poor people and their inability to comply with the requirements of the banks defeats the very purpose of the Scheme.

Educational loan schemes available at the nationalized banks, can play an important role in bringing the higher education within reach of the poor and middle class families. The need for raising the satisfaction level of the

beneficiaries of these Schemes assumes special significance in the present context. Through this study the need is to identify what are the expectations of customers out of these schemes how much banks are successful in satisfying them .

11

OBJECTIVE
MAJOR OBJECTIVE: To perform a gap analysis of the education loans
provided by banks in India.

SUB OBJECTIVES
i) To examine the eligibility conditions , formalities and procedure followed for sanctioning the loans by banks ii) To identify what are the expectations of the beneficiaries and to assess whether they are satisfied with the operation of the educational loan schemes iii) To identify what are the gaps in customer expectations and services offered by bank.

12

13

Educational Loan Scheme

The Reserve Bank of India has evolved an educational loan scheme to facilitate financial assistance to students seeking admission to private professional colleges to pursue the full time graduate/post-graduate courses. The scheme is effective from August 1,1999. All public sector banks have been directed by RBI to provide educational loans to students who fulfill certain eligibility criteria.

RBI has identified following disciplines:

i. Medical and dental (all branches such as allopathy, ayurvedic, homoeopathy) ii. Engineering iii. Chemical technology iv. Management v. Architecture including interior decoration vi. Law vii. Computer science and applications

14

Government of India in consultation with Reserve Bank of India (RBI) and Indian Banker's Association (IBA) has framed a Comprehensive Educational Loan Scheme to ensure that no deserving student in the Country is deprived of higher education for want of finances. The new scheme covers all type of courses including professional courses in schools and colleges in India and abroad.

The Salient features of the scheme are as under:

The scheme envisages loans up to Rs.7.5 lakh for studies in India and up to Rs. 15 lakh for studies abroad.

For loans up to Rs. 4 lakh no collateral or margin is required and the interest rate is not to exceed the Prime Lending Rates (PLR). For loans above Rs. 4 lakh the interest rate will not exceed PLR plus 1 percent.

The loans are to be repaid over a period of 5 to 7 years with provision of grace period of one year after completion of studies

Under the model IBA scheme (revised) implemented by the Ministry of Finance, there is no margin and collateral security requirement on loans below Rs 4 lakh. For loans above Rs 4 lakh, the margin requirement is 15 per cent for inland studies and 25 per cent for studies abroad. Scholarships and assistanceships are permitted

15

to be included in the margin. Further, margin money is not a one-time requirement. It can be brought in on a year-to-year basis as and when disbursements are made on a pro-rata basis. The collateral security requirement for loans of Rs 2 lakh and above is Rs 100 per cent of the loan amount. Guarantee of a third person known to the bank for an equivalent value is acceptable under the scheme. In case where the eligible collateral security like land or building is already mortgaged, the unencumbered portion is acceptable as security on a second charge basis, provided it covers the loan amount.

Eligibility criteria:

(i) Student should have secured admission in private professional college against either free/merit or payment seat. Student will have to submit a certificate to this effect from the principal / competent authority of the college concerned. The college should be affiliated to a university in the country and the course should be recognized by the concerned governing body, such as, Indian Medical Council,etc.

(ii) Student's annual family income (or that of his father or guardian) should not exceed Rs.1 lakh from all sources. An affidavit to this effect will have to be

16

furnished by the student and his father and in the absence of the father, by mother or other near relative.

(iii) Students who have secured admission against quota of seats meant for NRI/foreign students will not be eligible for assistance under the scheme.

Loan amount:

Rs. 15,000 for free/merit seat student and Rs.50,000/- for

payment seat students, or the fees payable by the student, whichever is less.

Interest:

The interest rates on these loans are usually on a floating basis.

They are linked to the lending rates of the bank and are called PLR or Prime Lending Rate. Normally, interest on loans up to Rs 4 lakh is the same as the PLR; some banks offer half or quarter percentage points lower than the PLR. Loans above Rs 4 lakh attract interest rates that are 50 or 100 basis points above the bank's PLR. During the moratorium period, simple interest is computed. On commencement of the repayment, compound interest is charged on the total outstanding balance (principal plus accrued interest) in the loan account. Accrued interest gets added to the principal amount and Equated Monthly Installments (EMIs) are fixed on the total outstanding amount.

17

Security:

Earlier loans up to Rs 4 lakh required collateral security. Now,

however, only loans above Rs 4 lakh require tangible collateral, security for full value of the loan or third party guarantee, depending on the amount. However, the co-borrower, who in most of cases is the parent or guardian of the student, is required to furnish his bank account statement, tax returns of the last two years, statement of assets and liabilities and proof of income. The margin requirements on education loans are not very rigid. It is 5 per cent for inland studies and 15 per cent for studies abroad for amounts exceeding Rs 4 lakh. The margin money is calculated from time-to-time on the outstanding balance of the loan. You will be required to bring in this margin money on a year-to-year basis, as and when the disbursements are made on a pro-rata basis.

Repayment: Repayment of the loan will commence immediately after two


years of completion of the course the student is studying in or six months after the student borrower has secured employment and starts earning, whichever is earlier. The total period for repayment including the above period of two years or six months, as the case may be, should not exceed five years from the date of completion of the course by the student.

A bond undertaking to repay the loan amount in the stipulated manner will have to be executed by the student and in case the student is minor, by his father/mother or the guardian.

18

Student will have to submit a certificate every year from the college authorities regarding fees payable by him. Loan amount will be remitted by the lending bank to the college concerned. Loan granted in each academic year may be treated as a separate loan account for determining rate of interest, security, etc.

The assistance from the bank should be available to the student for the entire duration of the course. The student will not be required to submit a fresh application for loan every year but will only submit to the bank proof of his continuing to fulfill the eligibility criteria.

However the objective of the scheme to provide financial assistance by way of loans to the meritorious and indigent students in order to encourage them to pursue the full time graduate/post- graduate professional courses in private professional colleges for developing the technical skills will be fulfilled only if the banks implement it properly.

Tax Benefit

19

Repayment of an education loan is deductible under section 80E of the Income Tax Act. The yearly limit for deduction is Rs. 40,000 (for both the principal and the interest). Only loans taken for higher education - fulltime studies in any graduate or post-graduate, professional, and pure and applied science courses - may claim deduction. The deduction will be available for a maximum of eight years starting from the day you start repaying.

Equitable Access to quality higher education has been a concern of the University Grants Commission. To this purpose the Commission, besides encouraging colleges and universities to provide for liberal financial support to the meritorious but needy students, has also been instrumental in educational loan scheme. The Reserve Bank of India (RBI) has issued guidelines in this regard to all commercial banks. A large number of banks have already launched educational loan schemes.

20

21

Education Scenario in India


India is home to 17% of the Worlds total population accommodated in an area which is 2.4% of the Worlds total area. As against 2820 languages in the entire world, as many as 325 languages are effectively used in India alone. Local dialects change in India almost after every 8-10 Kms. The country has witnessed phenomenal educational development both in quantitative and qualitative terms, since independence. However, the national goals of universal elementary education and total eradication of illiteracy have still remained elusive. The Government is committed to achieving these national goals and has been steadily increasing the budgetary allocation for education. The country has also made significant strides in higher and technical education. India spent 4.02% of its GDP on education during 2001-2002 but about 44% of its adult population still remains to be made literate. Statement-1 compares the population, area, density, literacy rates and level of public expenditure on education in India and some of its neighburing countries. Afghanistan with 63.75% adult illiterates is at the top, closely followed by Bangladesh, Nepal and Pakistan. POPULATION, AREA, DENSITY, LITERACY & PUBLIC EXPENDITURE IN INDIA AND SOME NEIGHBOURING COUNTRIES

22

Particulars Populat ion (millions) (2000)

Area (Sq. Kms)

Density Percentage Percentage Public to world of adult expr. on

illiterate

education %age GNP

Population as 2000 of

World 6055.0 * 135604354 45 100 Afghanistan 21.2 # 652090 33 0.48 Bangladesh 129.2 143998 897 0.11 China 1277.6 9596961 133 7.08 India 1027 $ 3287590 312 2.42 Indonesia 212.1 1904569 111 1.40 Japan 126.9 377801 336 0.28 Myanmar 46.4 676578 69 0.50 Nepal 22.5 # 140797 160 0.10 Pakistan 156.5 796095 197 0.59 Sri Lanka 18.8 # 65610 286 0.05 Thailand 62.0 # 513115 121 0.38 SOURCE: Statistical Yearbook, 1999 UNESCO

100 0.35 2.13 21.10 16.96 3.50 2.10 0.77 0.37 2.58 0.31 1.02

20.6 63.7 59.2 15.0 44.2 13.0 NA 15.3 58.6 56.7 8.4 4.4

(1996) NA N.A. 2.2 2.3 3.2 1.4 3.6 1.2 & 3.2 @ 2.7 @ 3.4 4.8

* Estimated population for 2000, # Reference year 1999, $ Reference year 2001 & Reference year 1994, @ Reference year 1997

Note: The area figures of India exclude area under illegal occupation of Pakistan and China. Expenditure on Education: Public expenditure on education:

23

The expenditure on the education sector was slightly less than 1% of the GDP in 1951-52. The percentage expenditure to GDP shows an irregular rise and fall. It rose to 2.33% in 1972-73 but in 1973-74 declined to 2.15%. It increased to 3.07% in 1979-80 and decreased to 2.83% in 1981-82. Continuing to rise and fall slightly, it has reached a level of 4.02% in 2001-2002. Similarly, the percentage of expenditure on education and training to total expenditure of all sectors during the last five decades indicates that it has increased from 7.92% in 1951-52 to 13.17% in 2001-2002 i.e. by 5.25 percentage points during the last five decades. This translates to an annual average growth of 0.11% during the period 1951-52 to 2001-2002.

24

Public Expenditure on Education in India Govt. expenditure on (Trg. Year by and Deptts. (center+state) 64.46 814.13 72.26 857.67 80.06 908.20 95.82 973.74 118.39 1111.26 132.88 1158.01 150.26 1416.62 173.78 1594.36 207.59 1770.06 239.56 1997.93 260.30 2225.40 278.76 2942.67 313.93 3488.97 369.29 3844.91 432.61 4404.82 487.83 5100.24 593.14 5619.77 649.13 6922.07 760.23 7908.07 892.36 8787.12 1011.07 10610.89 1150.43 11863.56 1300.72 12884.48 1570.67 14625.03 1849.47 17958.99 2039.09 20482.83 2630.60 22666.31 education Total & Govt. GDP

(In crore)

at

current % of Expenditure % factor on Education to Education

of

Rev) expenditure

prices(at

education on all sectors cost) base year Expenditure on all Expenditure other (Rev) 1993-94 sectors to GDP

1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78

10080 9941 10824 10168 10332 12334 12610 14106 14816 16220 17116 18302 20916 24436 25586 29123 34225 36092 39691 42222 44923 49415 60560 71283 75709 81381 92881 25

7.92 8.43 8.82 9.84 10.65 11.47 10.61 10.90 11.73 11.99 11.70 9.47 9.00 9.60 9.82 9.56 10.55 9.38 9.61 10.16 9.53 9.70 10.10 10.74 10.30 9.96 11.61

0.64 0.73 0.74 0.94 1.15 1.08 1.19 1.23 1.40 1.48 1.52 1.52 1.50 1.51 1.69 1.68 1.73 1.80 1.92 2.11 2.25 2.33 2.15 2.20 2.44 2.51 2.83

Expenditure By Level of Education : The expenditure on elementary education was 1.78% to the GDP in 1990-91. The percentage expenditure on elementary to GDP shows a gradual fall to 1.65% in 1994-95 and than shows a gradual rise to 2.02% in 2001-02. The percentage expenditure to GDP on secondary/higher secondary shows an irregular rise and fall and it has remained between 1.13 to 1.44 percent during 1997- 98 to 1999-2000. The percentage expenditure to GDP on Adult Education was 0.05% during 199091 showing a gradual decrease to 0.01% in 2000-2001. It improved slightly to 0.02% during 2001-2002. The percentage expenditure on University and Higher Education to GDP, which was 0.77 % in 1990-91 shows a gradual decrease to 0.62% during 1997-98 and rises to 0.88% in 2000-2001. The share of expenditure on Elementary Education to total expenditure on all sectors was 6.19% during 1990-91 and which shows irregular rise and fall and finally settled at 6.61% during 2001-2002. The share of Secondary and Higher Secondary Education to total expenditure on all sectors was highest in 1999-2000 i.e. 4.97% and the lowest (4.09%) during 2001-2002. The share of adult expenditure in total expenditure on all sectors was highest in 1990-91 (0.19%) and shows a gradual decreasing trend to 0.05% in 2001-02. The percentage share

26

of higher education to total expenditure remained between 2.32% to 2.96% in the last decade. Budgeted expenditure (Revenue Account) on Education The per capita budgeted expenditure during 2001-02 was highest in

Lakshwadweep (Rs.3439.11) followed by Sikkim (Rs.2435.98), A&N Islands (Rs.2371.23) and lowest in Bihar (Rs.386.45) followed by Uttar Pradesh (Rs.465.20) and Orissa (Rs.500.39). The percentage of Budgeted expenditure on education to the total State Budget was highest in Assam (31.36%) followed by Madhya Pradesh (30.18%) and Maharashtra (25.88%).

27

AVAILABILITY OF EDUCATIONAL LOAN SCHEMES AT BANKS


Educational loan schemes available at the nationalized banks, can play an important role in bringing the higher education within reach of the poor and middle class families. The need for raising the satisfaction level of the

beneficiaries of these Schemes assumes special significance in the present context.

Unfortunately, educational loans constitute an insignificant component of the loan portfolio of almost all commercial banks, both in the public and private sectors. Over the years there has been a tremendous growth in the number of students, courses and institutions in higher professional and technical education in the country, but the market for educational loans remains stagnant.

This should be surprising as the banks are flush with loanable funds and their overall credit offtake is low in the present recessionary circumstances. The RBI already circulated an educational loan scheme for commercial banks in July, 1999. Later, the Indian Banks Association (IBA) formulated a separate and additional scheme, which was adopted by the government with certain modifications and announced in the Union Budget 2001-02. The purpose of the scheme is to provide support from the banking system to deserving and meritorious students in the pursuit of higher education.

28

The moot question is why is the educational loan market insignificant in spite of the high pressure of demand for higher education, sufficient availability of bank funds and existence of a well-defined policy for educational loans.

Factors responsible for the situation fall both on the demand and supply sides. A large number of banks under the instructions and guidance of the RBI and the Ministry and Finance have floated educational loan schemes, but awareness of the same in the public is low, due mainly to poor publicity and advertising. Even among those who are aware of the existence of the schemes, there is little knowledge about course and student eligibility, expenses covered, loan quantum, margin money and collateral requirements.

There is a widely held belief that such loans are expensive and procedurally complex to obtain. Equally, there is little awareness about the tax advantage associated with the repayment of the loan. Section 80-E of the Income Tax Act, 1961, contains a provision for availing deduction on the total income on account of educational loans for the purpose of computing taxable income, provided the loan is in the name of the assessee.

On the supply side, there is considerable indifference on the part of the banks to make such loans. A number of branch managers particularly in public sector

29

banks, view such loans as potential NPAs (non-performing assets) due to liberal margin and security requirements.

Under the model IBA scheme (revised) implemented by the Ministry of Finance, there is no margin and collateral security requirement on loans below Rs 4 lakh.

For loans above Rs 4 lakh, the margin requirement is 15 per cent for inland studies and 25 per cent for studies abroad. Scholarships and assistanceships are permitted to be included in the margin. Further, margin money is not a one-time requirement. It can be brought in on a year-to-year basis as and when disbursements are made on a pro-rata basis.

The collateral security requirement for loans of Rs 2 lakh and above is Rs 100 per cent of the loan amount. Guarantee of a third person known to the bank for an equivalent value is acceptable under the scheme. In case where the eligible collateral security like land or building is already mortgaged, the unencumbered portion is acceptable as security on a second charge basis, provided it covers the loan amount.

Another reason for the banks lack of enthusiasm in the long-term character of the loans. Now that the specter of NPAs haunts bank managers, they are inclined to attach a high degree of risk to such loans which involve a repayment holiday or

30

moratorium of the entire course period (with provision of extension of two years) plus one year as the waiting period for employment.

The loan is repayable in five to seven years after employment is obtained. Thus, a bank will have to wait for at least 10 (4+5+1) years before a loan granted to an engineering student at the entry point is fully paid back.

For a five-year masters degree programme, the maximum waiting period can go upto 15 (5+7+2+1) years with extension. Over such long periods, bank managers fear that the liability-holder may vanish, die, or get financially incapacitated or bankrupt. Such situations can drag the bank into litigation.

Higher professional educational financing has to be a priority area of national importance as it affords an opportunity to deserving students to acquire and develop skills, which are important for national development.

Objective of the schemes


Nothing can be more frustrating for a parent than not being able to arrange for adequate financial resources to meet the cost of professional courses.

Everyone wants to provide the best education to his children. The cost of higher and professional education is high. These costs include tuition fees, cost of books, boarding and lodging, travelling, and other incidental expenses.

31

However, as with other things, now there are solutions available. Most of the banks give education loans. Students wanting to avail education loans need to approach these banks.

Once selected to a good institution, there is no dearth of lenders. Education loan schemes are very flexible and allow one to take long-term loans for all kinds of courses offered by recognised schools, colleges and institutions, including parttime and correspondence courses.

Loans are also available for studies abroad. One can take a loan to study in recognised schools, colleges and institutions. It is meant to meet expenditures on tuition fees, maintenance costs, books and equipment, cost of passage (for studies abroad), security deposits /refundable deposits, boarding and lodging etc.

The loans are available to Indian nationals who have secured admission to professional or technical courses through an entrance test or selection process, or have secured admission to a foreign university or institution.

The loan amount depends on the need and is subject to the repaying capacity of the parents/students. Usually, for studies in India the maximum amount financed is Rs 7.50 lakhs. For studies abroad the maximum amount financed is Rs 15 lakhs.

32

{ Source: Article by Ashish Gupta, Times News Network, Friday 20 th August 2004. }

Interest Rates

Most banks give loans from Rs 2.5 lakh to Rs 10.5 lakh, depending on the duration of the course and the stream chosen. The interest rates charged on these loans vary from 10 to 12.5 per-cent. The rates of interest range from 11.5% (Bank of Baroda) and 12% (State Bank) to 12.25% (Canara Bank, Bank of India) and 12.5% (Central Bank of India, United Bank of India), depending on the loan amount and term. Private trusts like J.N.Tata Endowment also give education loan scholarships for studies abroad. For these schemes, you need to have an excellent academic record and satisfy an interview panel made up of leading experts and academics.

Bank of Maharashtra in an attempt to rope in customers early with an educational loan, and then offer benefits along the way has tied up with a Pune based professional educational institutions where education loans are being offered. These institutes have offered to take on the interest burden so that the students get interest free loan.

33

{ source: Article by: Gouri Agtey Athale, Times News Network, Thursday, September 16,2004 }

In the budget for 2004-05, Finance Minister P Chidambaram proposed modification of the earlier scheme to enable students to get education loans up to Rs 4.0 lakh at prime lending rates (10-11 per cent) without any collateral for professional courses, such as the ones at IITs, IIMs and government medical colleges.

As a result of this measure education loans almost doubled to Rs 1,994.88 crore in 2002-03 after giving loans to 1.41 lakh students.

About 88,614 students took loans totaling Rs 1,032.74 crore in 2001-02 as against 44,694 students getting Rs 667.60 crore in 2000-01. For loans above Rs 7.5 lakh, a student has to furnish collateral of suitable value or co-obligation of parents or guardians along with the assignment of his/her future income for payment of installments.

Generally, banks provide a moratorium period after which the recovery starts. Some banks charge a nominal processing or administrative fee. However, many banks have waived off these charge. The repayment period is long and ranges from five to seven years.

34

It commences from one year after the course period or six months after getting a job, whichever is earlier. The outstanding interest for the moratorium period is added to the loan amount at the time of commencement of re-payment.

{ source: PTI, Sunday, 8 th August 2004 }

Other Charges

Margin money and processing charges are what you need to keep an eye on when you approach any institution for a loan. Margin money is a certain percentage of the loan amount that is retained by the banks for developmental purposes. While Punjab National Bank and Allahabad Bank do not charge any margin money, others like Syndicate Bank and Union Bank charge margin money of up to 25%.

As far as processing charges are concerned, banks like ICICI Bank charge a flat 2% while others like Corporation Bank charge Rs 100 on every Rs 1 lakh. So do compare the various options before you decide to take that loan.

35

LOAN SANCTIONING PROCEDURE

The procedure followed by the banks for sanctioning educational loan involves the following main stages :

1.

Preliminary Inquiry About Loan

Usually the applicant makes his first visit to the bank for certain preliminary inquiries about the availability of educational loan from the Bank. At this stage, he seeks all the relevant information, pamphlets, literature, application form etc. for making a formal application to the bank for obtaining educational loan. The Bank Manager or the Credit Officer also makes certain inquiries from the applicant about the intended course of education, duration of the course, academic career of the borrower after Class X, his financial circumstances, family background, profession of father, total expenditure involved, financial assistance required etc. Most often the total expenditure involved in pursuing educational course is much more than the loan applied from the bank. In such cases, the borrower is asked to explain how he plans to meet the gap. The Branch Manager also makes as assessment of the repaying capacity of the father of the applicant and employment prospects of the applicant after completion of the course. After the loan amount is decided, the branch manager advises the borrower about the

36

security requirements and the nature of securities acceptable to the Bank. The borrower is advised to submit his formal application complete in all respects, together with necessary documents relating to the security requirements.

2.

Submission of Application to the Bank

The borrower submits his formal application to the bank and the branch manager examines it to make sure that the application has all the relevant supporting documents enclosed with it. The borrower is advised to contact the bank after one or two weeks to check up the status of the application.

3.

Scrutiny documents

of

the

application

form

and

security

At this stage, the concerned officer in the bank scrutinizes the application form and examines all the documents relating to security requirements. An attempt is made to ensure that the application contains complete information and that the applicant is fully eligible under the educational loan scheme. Documents relating to the security of the loan amount are also scrutinized. In case mortgage of

Immovable property is involved, the relevant documents are scrutinized by, the Legal Cell of the Bank. After scrutiny of the papers, the Legal Cell gives their clearance to the concerned Credit Officer for further necessary action. 37

4.

Submission of Papers to the Branch Manager

After the scrutiny of the application form and other documents, the Credit Officer puts up the papers for obtaining sanction of the competent authority for educational loan to the applicant. Depending upon the loan amount, necessary sanction is accorded by the Branch Manager or the higher authority.

The Study Team observed that normally the delay occurs when the proposal is sent to the higher authority or it involves scrutiny of the documents by the Legal Cell in the case of mortgage of immovable property.

5.

Issue of Sanction by the Bank

After the loan is sanctioned by the competent authority, the applicant is informed about the sanction and the manner in which the loan is required to be repaid.

6.

Disbursement of Loan

Normally, the loan amount is disbursed in installments as and when the demands are, made by the educational institutions. As far as possible, the loan amounts, are disbursed directly to the educational institution. Mostly the banks demand

38

progress reports from the educational institutions to ensure proper utilization of the loan.

39

IMPORTANT QUESTIONS THAT ARISE IN CASE OF AN EDUCATIONAL LOAN

For what type of courses can educational loans be taken

Educational loans can be taken to pursue a wide variety of courses, for example: School/graduation courses, like High School, B.Sc., B.Com., B.A., etc. Postgraduate/specialized courses, like B.Sc., M.Sc., B.A., M.A., B.Com., M.Com., etc. Professional courses, like M.B.A., M.C.A., B.E., M.E., B.Tech., M.B.B.S., etc. Other courses, like computer courses, fashion designing, commercial pilot training, etc. Keep in mind, however, that, usually, the courses financed should be for durations of more than a year, i.e., 12 months.

Most graduate, post-graduate, professional courses (engineering, medical, veterinary, law, dental, management), and programmes such as of the Institute of Cost and Work Accountants of India, the Institute of Chartered Accountants of India, the Institute of Chartered Financial Analysts of India are eligible for the education loans. So are courses recognised by the University Grants Commission, the All India Council for Technical Education, government, the AIBMS, and the Indian Council for Medical Research.

40

Banks are also offering loans for less conventional courses such as biotechnology, fashion technology and aviation. They are usually flexible in approving and disbursing such loans.

The criteria for granting a loan are the merit of the applicant and the place of permanent residence. Banks insist on mark-sheets, and proof of admission and scholarship to the course in question before deciding to sanction the loan.

What are the costs covered under educational loans

Educational loans usually cover the costs of tuition fees, hostel fees, mess fee and examination fees. Some banks may also finance the cost of books, equipments and other instruments required by the student for that course. For studies abroad, banks may provide one-way air fare. But this needs to be checked with your individual bank.

You can use an education loan to finance a range of expenses, apart from tuition fees. They include:
Fee payable to college, school or hostel. Examination, library, laboratory fee. Purchase of books, equipment, instruments, uniforms.

41

Caution deposit, building fund, refundable deposit supported by institution bills, receipt.

Travel expenses for studies abroad. Purchase of computers essential for completion of the course. Any other expense required towards the completion of the course such as study tours, project work and thesis.

Who is eligible for an educational loan

There are many criteria that determine the eligibility of a student for an educational loan. These vary greatly from bank to bank. The most important criterion is that the student must have qualified for, or have a confirmed admission in a college or institute. The other factors that are normally important with nationalized banks are the age band, i.e. the student applying for the loan must be in the age group of 16-26 or some such specified range. Other criteria are good academic record (first class throughout, with no gaps or breaks in education, etc.), and a regular source of income for the parents. The recognition granted to the institution the student has opted for is also an important criterion.

What is the maximum amount that can be availed under educational loans? / How is the maximum loan amount calculated

42

The maximum loan amount varies from bank to bank, but, most importantly, it depends on the course for which the loan is sought and the institution chosen. For example, the loan amount for an M.B.A. course would be different for different institutes--the fees at I.I.M.'s would be approximately Rs 2 Lac, whereas at Somaiya it would be Rs 80,000. Hence the loan amount will vary drastically. But many banks have a margin criterion, which means that they would provide up to 75 per cent or 90 per cent of the total cost of the course, while the balance has to be paid by the applicant. The loan amount can also depend on the borrower's parents/guardians net monthly salary. The loan amount could also be calculated as being six or 10 times the monthly salary of the parent. Ultimately, however, the loan amount would depend on the discretion of the bank.

What security does one needs to provide for the loan

The security depends on the loan amount. It is quite possible that banks may not require security for a loan of up to Rs 25,000, but would require it for amounts greater than that. These limits are usually in slabs that vary with banks. The usual security that the banks generally take are National Savings Certificates (NSCs), bonds, gold, vehicle, house or property, etc. In addition to these, some banks might also require the applicant to have a life insurance policy equivalent to, or greater than, the loan amount.

43

What are the documents required for an educational loan

The general documentation required by the banks for disbursing education loans is usually very simple. The most important among them is proof from the college/institute that the student has a confirmed admission there. Then comes an agreement with the students or the parents/guardians, and proof of residence. Proof of age is also important, considering that quite a few banks have a clause that they would not finance a student above a certain age limit. Also required are documents to prove that the parents/guardians have a regular source of income, namely, salary statements, IT returns, etc. And, lastly, a resume of the student, clearly showing his past academic performances.

What are the interest rates for educational loans and how are they calculated

The interest rates vary significantly from bank to bank. It is usually determined on certain slabs. For instance, for loans up to Rs. 25,000, the rate of interest would be 12 per cent, for Rs 25,001 to Rs 2 lakhs, 14 per cent, and for loans greater than Rs 2 lakhs, it would be 16 per cent. The interest rates could be fixed or variable. A fixed interest rate means that the rate of interest for the entire tenure of the loan would remain the same, whereas a variable interest rate, which

44

depends on the Prime Lending Rate (PLR) set by the Reserve Bank of India, keeps changing half-yearly or yearly. Usually, nationalized banks follow variable interest rates, while private and foreign banks follow fixed interest rates. It is advisable to opt for variable interest rates because it has been seen, over the years, that the PLR has been dropping, and hence the interest rates applicable on the loan amount would drop correspondingly. The interest on the educational loan taken by a student starts immediately after the day of disbursal. The interest is payable on a quarterly reducing basis, calculated on a simple interest basis. But once the repayment of the actual principal starts, the interest is calculated on a compounded basis.

What is a holiday period

A holiday period is the maximum time given to the student before he/she needs to start paying back the principal loan in Equated Monthly Installments (EMIs). In other words, it is the period between the student's final examination in the course for which the loan was availed and when he/she actually starts paying the EMIs. Typically, holiday periods range from six to 12 months. Take note, however, that if the student starts working immediately after completing the course, he does not enjoy a holiday period. Repayment usually starts six months after the course completion or the commencement of a job, whichever is earlier.

45

How is the disbursement made

Disbursement of the educational loan is made directly to the institute/college to which the student has applied for admission. In the case of mess and hostel charges, the relevant amounts are given to the concerned authorities. In the case of air fare, which is also available for studies overseas, the amount is given directly to the airlines. Some banks do give the students themselves a certain amount on a monthly or quarterly basis for purchasing books, equipments and other related material associated with the course. This, again, depends on the discretion of the bank.

Why do banks require an insurance policy

When the loan amount is greater than a lakh, banks usually prefer students to have Life Insurance Corporation (LIC) policies equivalent to, or more than, the loan amount. This is nothing more than a security feature that also forms a part of your collateral. In case the student is not able to pay back the loan, the bank does not lose money on it and can recover the outstanding amount from the student's LIC policy.

46

Why does the repayment of education loans taken for school/high school/graduation studies start immediately

In the case of educational loans taken for school/high school/graduation courses, the student is not the borrower; his/her parents or guardians are. And since it is assumed that they have a steady source of income, the loan repayment can start immediately without any holiday period. Hence the repayment starts immediately.

Is there any special privilege for students in the Scheduled Caste/Scheduled Tribe (SC/ST) category who avail of educational loans

Yes, special privileges, in terms of eligibility and margin money, are given to Scheduled Caste/Scheduled Tribe students availing educational loans. The eligibility criteria are lowered from first/second class to pass class for SC/ST category students. Further, the margin money for them is sometimes nil or lower than the normal amount. Only nationalized banks offer these privileges to SC/ST students, and not private or foreign banks. Even with nationalized banks, one needs to properly check out these privileges beforehand.

When can one apply for a loan

47

One major criterion that banks seek is confirmed admission. So, once the student has secured a confirmed admission in an institute, along with a break-up of fees and other related issues from the college, he/she can approach a bank for an educational loan.

A good academic record is essential, but not compulsory. A lot depends on one's relations with the bank, and the bank has a sole discretion over the disbursement of the loan. Also, a lot depends on whether one is able to provide the collateral required by the bank. If both of the above factors are in favour of the person he could be the lucky one to get an educational loan from the bank for further studies.

Why are guarantors required

Guarantors are essential for sanctioning of loans. Usually, a guarantor is required so that if the applicant fails or becomes incapable of repaying, the guarantor will be responsible for clearing the debt. Usually, a guarantor so chosen is a person with a net worth (i.e., annual income) equivalent to, or more than, the loan amount.

What is the margin amount and how is it calculated

48

A margin amount is the amount that the applicant pays through his/her pocket. A bank can either pay 100 per cent of the cost of studies or a certain percentage of the total cost. The margin is usually the amount not covered by the bank for the payment of the essential and necessary fees to the college/institution. Consider an example: Bank XYZ offers a loan for an M.B.A. course, and the margin is 10 per cent. Here, 90 per cent of the cost of the course will be borne by the bank and the balance 10 per cent has to be borne by the student/applicant.

Is the student's age a major consideration while applying for an educational loan

This again depends on the bank and its discretion. Quite a few of the nationalized banks follow the criterion of sanctioning loans to students falling in a particular age group, e.g. 15-25 years. But this is not so with private and foreign banks. It is always safe to check with your bank first for all the details regarding eligibility.

Will air travel fare be given by the bank as part of the educational loan

That depends on the bank concerned. Some banks provide for air fare, applicable only once, and one-way, at the time of joining the course. This is given to students

49

going abroad for further studies, and is not applicable for students going for domestic studies. The money for the one-way fare is given directly to the airline concerned, and not to the applicant.

Is it necessary to have an account with the bank to avail of an educational loan

Initially, this used to be important criterion with nationalized banks. Now, however, with more relaxed norms, it is not mandatory to have an account. However, if one does have an account with that particular bank, it becomes easier to get the loan sanctioned. This is because the bank can examine your past financial records and transactions, and make a decision quickly.

What do banks mean by `recognized' and `reputed' institutions

`Recognized' institutes refer to those that are affiliated to the State/Central universities and come under the Central government's University Grants Commission (UGC) programs or the All India Council on Technical Education (AICTE). The majority of the colleges fall within the ambit of the UGC and AICTE. `Reputed' institutes are those that are pretty well-known and have standard courses of repute. The definition of `reputed' institutions might vary with banks, which usually have a list of colleges and institutions that they consider reputed.

50

Hence, you need to check with the bank whether it will finance courses run by that particular college/institute.

What Income Tax (IT) relief's can be claimed for repayment of educational loans

Under Section 80 E of the IT Act, a deduction will be allowed in respect of repayment of loan taken for higher education, subject to the following conditions: In computing the total income of an assessee, being an individual, these shall be deducted, in accordance with, and subject to, the provisions of this section: any amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of loan, taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his/her higher education, or interest on such loan, provided that the amount that may be so deducted shall not exceed Rs 25,000. The deduction specified above shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or untill the loan referred to above, together with the interest thereon, is paid by the assessee in full, whichever is earlier.

Can educational loans be availed for part-time courses/distancelearning programs (correspondence courses)

51

Most of the banks prefer not giving loans for part-time or correspondence courses, but ultimately it all depends on the bank's discretion and your relation with the bank. Since eligibility criteria are relaxed for these types of courses, and the chances of getting a good job after such courses are generally bleak, and also assuming that the applicant would be already working somewhere, banks prefer to stay away from financing these kinds of courses. But there are banks like the State Bank of India that provide students' loans for part-time and correspondence courses.

What is an interest portion and EMI

The interest portion is the amount paid by the student during the time of his course that starts immediately from the month following the loan disbursal. During the tenure of his course, he/she keeps paying interest to the bank, whereas the main principal is only paid at the end of the holiday period. EMI or Equated Monthly Installment` is the amount payable by the student after the end of the holiday period that includes a certain portion of interest and principal. EMIs are calculated on a quarterly reducing basis.

Can a minor avail of an educational loan

52

No, a minor cannot avail of an educational loan. But his parents/guardians who satisfy the eligibility criteria can do so. Banks assess the individual's repaying capacity at the time of disbursing the loan, and, hence, minors are ineligible for educational loans

Is there a penalty for pre-payment

That depends on the bank. Nationalized banks do not have any pre-payment charges, but private and foreign banks usually charge a penalty, which usually ranges from 0.25 per cent to 2 per cent of the outstanding loan amount.

What are the incentives for early repayment Banks offer incentives to start repayment during the moratorium period. For example, SBI gives you a concession of one per cent on the interest outstanding, if you pay the entire interest amount when it falls due during the moratorium period. Also, if you pay 0.5 per cent of the principal amount every month, you get half a percentage point concession on the outstanding principal amount. Allahabad Bank offers one per cent concession on the interest factor alone, while Canara Bank offers 0.5 per cent.

53

Unlike other loans, education loans do not attract pre-payment penalty. If you find yourself able in the early years of your career, you can pay off the entire outstanding loan amount. Can we switch There are no reset options when it comes to education loans. These loans are based on floating rates and you do not have a fixed rate option to switch to. But you can transfer your loan from one bank to another, if you find a more attractive offer. Normally, one per cent of the outstanding loan amount is charged to the borrower in the case of a take-over. However, you need to clearly work out the savings by the lower interest rate and compare with the switching cost and decide whether to switch. Are there any special packages offered Most nationalised banks offer education loans, while private sector banks usually do not. Allahabad Bank, SBI, Canara Bank, Central Bank of India, Corporation Bank, Syndicate Bank, Oriental Bank of Commerce, Bank of India, Bank of Baroda, Andhra Bank are very active in this segment.

54

Banks also tie-up with educational institutes to offer comprehensive loan packages to students. This saves students some of the procedural hassles involved with getting the loan sanctioned. SBI has tie-ups with the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs) and HSBC has tied up with the Indian School of Business. Allahabad Bank offers loans at interest rates which are 200 basis points lower than the PLR for students of IIMs, IITs and professional courses. Recently, SBI also tied up with Frankfinn Institute, an air-hostess training academy, for the one-year diploma in aviation, hospitality and travel management. For those looking to study abroad, SBI has an interesting package as it has tie-up with Thomas Cook. Thus along with the loan, you can get instant wire transfers, foreign currency drafts, travellers' cheques, pre-paid card and insurance. Earlier, banks insisted that the applicant take an insurance policy. Now it is up to the student. Its easier now

With effect from FY02, banks have come out with a slew of incentives that are calculated to make education loans more attractive. Some banks even offer lower interest rates if you repay the loan within a specified time period.

55

Education loans also allow attractive tax-savings options. Under Section 80 E of the Income Tax Act, you can get a deduction of up to Rs 40,000 on repayment of an education loan. This deduction is available for loans enabling higher education, defined as full-time courses of graduate or postgraduate studies in engineering, management, medicine, applied and pure sciences and mathematics and statistics. The lending institution should be one established for charitable purposes and notified by the Central government.

56

57

Service Quality

Measuring and improving quality is more difficult for services than for products

Unsatisfactory service cannot be replaced or repaired

Intangible and temporary nature

Defining Service Quality

Specifications

Company: Standard operating procedures

Customer: Personal expectations

Misalignment of company and customer specifications can lead to dissatisfaction, even if the service is delivered as designed

58

Effective communication is key in eliminating misalignment

Defining Expectations

Will expectation: Average level of quality that is predicted based on all known information Should expectation: What customers feel they deserve from the transaction

Ideal expectation: What would happen under the best of circumstances; useful as a barometer of excellence Minimally acceptable level: The threshold at which mere satisfaction is achieved

Types of Definitions of Quality

Transcendent: Innate excellence that can be recognized only through experience Product-based: Measurable quantities are used to define quality

59

User-based: Quality is in the eyes of the beholder

Manufacturing-based: Conformance to requirements

Value-based: A balance between conformance or performance quality and an acceptable price to the customer

Measuring Service Quality

Reliability: Consistency of performance and dependability

Responsiveness: The willingness or readiness of employees to provide service. Assurance: The knowledge, competence and courtesy of service employees and their ability to convey trust and confidence Empathy: The caring and individual attention provided to customers

Tangibles: Physical evidence of the service

60

SERVQUAL Model

Compares customer expectations with their experience of the service that was actually delivered

Discrepancies are gaps in service quality

Determinants of Service Quality

Reliability

Responsiveness

Competence

Access

Courtesy

61

Communication

Credibility

Security

Understanding or knowing the customer

Tangibles

Quality: Profit or Cost

Both! Improving quality does require a company to incur costs Return on quality storyline:

Improved Improved Improved Customer Customer Service Satisfaction 62 Retention Performance

Increased Market Share

Increased Profitability

12

Other Quality-Related Sources of Profits

Cost reductions due to increased efficiency

Attraction of new customers resulting from positive word-of-mouth

The ability to charge higher prices

Costs of Quality

Prevention of problems

Inspection and appraisal to monitor ongoing quality

The cost to rework a defective product before it is delivered to a customer

The cost to repair/replace a defected product after it reaches the customer

Implementing Quality Service


63

Design fail-safe attributes into services

Service guarantees and refunds

Unconditional

Easy to understand and communicate

Meaningful

Easy to invoke

Easy to collect

64

Calculating Return on Quality

Determine customer needs from the service

Relate customer needs to internal business processes Collect data on customers satisfaction with business processes Relate customer satisfaction with various process and customer retention Determine the shift in customer satisfaction with the firm or a business process resulting from a quality improvement effort Estimate the customer retention rate after the quality improvement effort

Estimate the market share impact corresponding to the new retention rate Determine the profit impact resulting from the change in market share, plus any cost savings, minus the cost of the quality improvement effort

65

Definition of Gap Analysis

It is a formal means to identify and correct gaps between desired levels and actual levels of performance Used by organizations to analyze certain processes of any division of their company

SERVQUAL Model Gaps

Gap 1

The difference between actual customer expectations and managements idea or perception of customer expectations

Gap 2

Mismatch between managers expectation of service quality and service quality specifications.

66

Gap 3

Poor delivery of service

Gap 4

Differences between service delivery and external communication with the


Gap

customer

Problem

Cause(s)

1. Consumer expectation mgmt. Gap perception 5

The service features offered dont meet customer needs

Lack of marketing research; inadequate upward communication; too many levels between contact personnel and management

The service specifications Differences between expected and perceived quality 2. Management defined do not meet Resource constraints; management perception service managements perceptions of indifference; poor service design quality specification customer expectations

3. Service quality specification service delivery

Gaps in Service Quality


The service does not meet customer expectations, which have been influenced by external communication

Specifications for service meet customer needs but service delivery is not consistent with those specifications

Employee performance is not standardized; customer perceptions are not uniform

4. Service delivery external communication

Marketing message is not consistent with actual service offering; promising more than can be delivered

5. Expected service perceived service

Customer judgments of high/low quality based on 67 expectations vs. actual service

A function of the magnitude and direction of the gap between expected service and perceived service

68

69

SERVQUAL Model

70

71

72

Big bucks for education

HEMA RAMAKRISHNAN

TIMES NEWS NETWORK [ FRIDAY, OCTOBER 21, 2005 12:25:34 AM]

Students are surely investments for future business growth in the banking sector. Stateowned banks are now increasingly looking at the commercial spin-offs of financing education while helping the government meet its goal of raising public spending in education.

Loans to finance education form a part of the priority sector lending for banks, which are also under pressure to improve their financial health. They are hoping to cash in on the loyalty factor to enlarge their customer base. With higher education becoming more expensive both in India and abroad, banks exposure to education loans is on the rise though it may still not constitute a large chunk of their retail business.

Education loans account for around 6.1% of the total advances in seven districts of Western Maharashtra, according to M M K Rao, chief marketing executive, State Bank of India. Nearly six months ago, SBI raised the ceiling for loans to finance studies in India from Rs 7.5 lakh to Rs 10 lakhs. For students pursuing education abroad, the limit was upped from

73

Rs 15 lakh to Rs 20 lakh. The ceiling for other banks is Rs 7.5 lakhs and Rs 15 lakhs, respectively.

The terms and conditions have to be in sync with the governments guidelines framed in 2001. For starters, there is no margin requirement for education loans upto Rs 4 lakhs. The requirement is 5% for loans above Rs 4 lakhs advanced for studies in India and 15% for studies abroad.

Collateral security of suitable value or co-obligation of parents or guardians or a third party is needed for loans above Rs 4 lakhs. Banks cannot charge interest exceeding their PLR for loans upto Rs 4 lakhs. It is PLR plus 1% for loans above Rs 4 lakhs. Students dont have to pay a processing fee on their loan applications. The moratoroum on re-payment in most cases is the course period plus one year or six months after getting a job, whichever is earlier.

Of course, there are minor variations in the terms offered by various banks. Heres an indicative but not exhaustive list. The SBI, for instance, charges a yearly interest of 10.50% on loans upto Rs 4 lakh and 11.50% for loans above Rs 4 lakhs.

The repayment period to finance studies in India is 5-7 years for loans upto Rs 7.5 lakh and 5-10 years for loans above Rs 7.5 lakh. For a student pursuing studies abroad, the repayment period is 5-7 years for loans upto Rs 15 lakh and 5-10 years for loans above Rs

74

15 lakh. A deposit of Rs 5,000 is required for loans taken for studies abroad and this is adjusted in the margin money.

Bank of Maharashtra charges a yearly interest of 11.25% for loans up to Rs 4 lakhs and 12.25% for loans above Rs 4 lakhs. Simple interest is charged during the moratorium period. The loan has to be repaid in five years after starting the repayment. A two year extension can be given if the deadline is not adhered to. Over the last two to three years, BoM has disbursed education loans to nearly 6,000 students in Maharashtra.

Bank of India (BOI) charges an interest of 10.75% per annum on loans up to Rs 4 lakhs and 11.75% for loans above Rs 4 lakhs. Simple interest is charged during the moratorium after which interest is compounded. The loans are disbursed directly to colleges.

There are also broad guidelines on the eligibility criteria. For studies in India, banks can finance school education including plus two stage, graduation and post graduation, professional courses, computer certificate courses of institutes accredited to Ministry of Information Technology, courses like ICWA, CFA, CA, courses by IIMs, IITs, IISc, XLRI, NIFT and those offered by reputed foreign universities, among others. The off-take is relatively higher for students pursuing medicine and engineering in private institutions in cities like Pune.

Most banks have seen a steady rise in loans for students enrolling abroad in professional and technical courses offered by reputed universities abroad, post graduation courses such 75

as MBA, MCA, MS and courses conducted by CIMA - London or CPA in the US and so on. Banks have also come up with special loan schemes for students enrolling in top notch institutions in India, again eyeing business potential.

The SBI, for instance, has just tied up with Training and Advanced Studies in Management and Communications (Tasmac), a limited company offering courses MBA vali-dated by the University of Wales. Students taking up these courses will be eligi-ble for loans on softer terms.

The bank already has the SBI Scholar Education Loan scheme which is offered to those securing admissions in designated IIMs, IITs, IISc, Delhi College of Engineering, AIIMS, Tata Institute of Social Sciences, to name a few. Under this scheme, the loan is sanctioned to the student without a co-borrower. A 9.25% interest is charged on loans above Rs 4 lakhs. For loans above Rs 4 lakhs, the yearly interest is 9.75%. Students dont have to give a third party guarantee or a collateral either. The moratorium is six months.

However, there are no special packages for education loans offered by banks for students pursuing their studies in education hubs like Pune. Bankers say that no discrimination is possible as benefits should be uniform for all students.

76

Education loans: Bankrolling dreams


HINDU BUSINESS LINE JULY 10, 2005

Radhika Kamath

IF YOU aspire to pursue higher education or a professional course, don't let the cost of the programme hold you back. If you are sure that taking the course will improve your job prospects, you could take an education loan to see you through it. Banks now offer a range of loan products and specialised packages that can help you get by without financially burdening your parents. Some of the questions answered in this article are : -- Who is eligible? What is covered? Collateral Terms of the loan

77

Incentives for early repayment Can you switch? Special packages The tax angle

78

Girl power
TIMES NEWS NETWORK [ THURSDAY, SEPTEMBER 29, 2005 02:04:13 AM]

Women empowerment in education is something that banks cannot turn a blind eye to. Bank of Maharashtra (BOM) has just started offering education loans on softer terms to women as part of Maha Bank Shakti scheme.

The interest rate on loans for women students is 10.25 % or 100 basis points below PLR; for loans up to Rs 4 lakh. For loans above Rs 4 lakh, the interest rate is 11.25%.

Cheaper education loans are already available to Maharashtra Family Bank Card Holders; who have deposits aggregating to Rs 1 lakh and above. For loans up to Rs 4 lakh, the interest is 9.25%, 200 basis points below PLR.

A 10.25% interest is charged for loans above Rs 4 lakh.A women student who is not a card holder will now be entitled to an education loan on softer terms. A wee bit of relaxation has been offered in the repayment period-course period plus six months after joining the job or a maximum of eighteen months after completing the course, whichever is earlier.

79

Education loans: Pvt, foreign banks stay away

Vidyalaxmi & Preeti R Iyer in Mumbai | September 28, 2005 10:03 IST Some major points from the article are : -- The government regulation requires a bank to sanction educational loans to every applicant and there is no discretion allowed. Government regulation on educational loans is the biggest hurdle as it prevents banks from assessing applications based on criteria. Leading banks Citibank, ICICI Bank and HDFC Bank do not have educational loan products. UTI Bank and HSBC do have a small presence in educational loans, but they extend only large sized loans over the limits stipulated by the government. The government regulations state that banks should lend without collateral up to Rs 750,000 and with collateral Rs 15 lakh (Rs 1.5 million). Public sector banks have a 90 per cent market share in educational loans, as they are the most active given their ownership profile. Public sector banks charge 10 to 11 per cent interest on educational loans, while HSBC and UTI charge interest of 11 to 13 per cent.

80

What also puts bankers on the defensive is the fact that the student who might have borrowed from a bank based in India, could have settled abroad at the time of repayment.

The current delinquency rate is around one-two percent, which rises to five per cent when students go abroad for higher studies.

While public sector banks cater to loan requirements up to Rs 15 lakh, their private sector and foreign peers look after needs on the higher end of the segment.

With SBI, Andhra Bank and Vijaya Bank being active state-owned players in this segment, HSBC offers loans up to Rs 25 lakh (Rs 2.5 million), while UTI Bank offers the facility of a travel card denominated in the US dollar, the pound sterling and the euro.

As demand for study loans is extremely seasonal, educational loans account for an extremely small proportion of a bank's lending portfolio, pointed out an official from a leading foreign bank.

Thus far, the entire banking system extended Rs 6,130 crore (Rs 61.3 billion), as educational loans to 432,000 students, while banks in the state sanctioned Rs 1,425 crore (Rs 14.25 billion) of the same as on March 31, 2005.

Mushrooming of various business schools, emergence of higher fee-structure of existing professional courses, coupled with the introduction of more unconventional courses is expected to boost potential within this portfolio.

81

Loans at your service : Higher education may never be the same again with banks willing to finance your education at attractive rates.
By Amit Kr Chanda Times News Network

This article again provide latest insights about points like : Eligibility Courses Expenses considered for loan Loan amount Repayment Check list One should do his or her homework before approaching any bank for education loans. This may differ from bank to bank but overall, it tends to remain the same. Paperwork includes: * Mark sheets of the last qualifying examination for school and graduate studies in India * Proof of admission to the course * Schedule of expenses for the course

82

* Copies of letter confirming scholarship * Copies of foreign exchange permit, if applicable. * Two passport size photographs * Statement of bank account for the last six months of borrower * Income tax assessment order not more than two years old * Brief statement of assets and liabilities of borrower If you are not an existing bank customer you would need to establish your identity and give proof of residence. Visit: www.cyberjournalist.org.in/banks.html www.allahabadbank.com/educationloan.htm?key=J www.bankofbaroda.com/presonal/bobscholar.asp www.statebankofindia/personalbanking/eduloans.asp www.denabank/dummy.htm www.corpbank.com/personal_loans.html www.hdfcbank.com/Ri/RI-loan-personal-intro.htm

83

Provide education loans, AISF urges State


Staff Reporter HYDERABAD: The All-India Students' Federation has urged the Government to provide unconditional educational loans for economically backward students and also to set up an `Educational Development Bank of India.' At a press conference here on Monday, AISF national president, Ramakrushna Panda, regretted that in spite of the promise made by the UPA Government in its Common Minimum Programme that none would be denied access to higher education, several students had committed suicide this year unable to meet educational expenses. While a loan programme would certainly help improve the situation, it could not however, be viewed as an efficient solution to the problem of finances both in the short and long term, he said. The AISF thus demanded that the Union Government spend at least 10 per cent of its budget and the State Government 30 per cent of its budget on education. The AISF State president, L. Sravan Kumar, and the State secretary, N. Raja Reddy, were also present.

84

Marketing strategy for educational loans


Suresh Bedi Main points from this article are : -- The principal element of the strategy should be to reduce the riskness of educational loans. For that, the banks need to attempt market segmentation and product positioning. Market segmentation need not be equated with discriminating between different classes of borrowers. The banks need to target basically two categories of borrowers. o The first category comprises the sponsors, whose solvency or financial capability is well-established and can offer healthy collateral securities. This class of borrowers may have demand for educational loans not for financial reasons, but to take tax advantages on repayment or to impart a sense of stake-holding and responsibility in the mind of their wards so that they take their credit-based studies seriously. o The other category comprises parents of the upper layers of brilliant students who have high probability of employment after education. IBA guideline permit relaxation of security, margin money and repayment norms in such deserving cases.

85

In order to generate demand for such loans, appropriate and timely advertising with informational and rational appeal is required so that the target borrowers could be motivated.

As a part of promotional strategy, banks can gainfully tie up with leading educational institutions from where they can obtain reliable data about parents financial position and students academic merit and involve the institution in the disbursement and subsequent follow-up and supervision of the `loans.

For such arrangements, banks will have to carefully design their loan products within the contours of the overall policy and arrange suitable training for managers in this sensitive and non-traditional area.

The writer is Director, Institute of Management Studies and Research, Maharshi Dayanad University, Rohtak.

86

Loans for studies


By R. Sarin August 2004 This article suggest that many people see education as a cost , and not as an investment . Actually it can be seen as an investment followed : --. The author says following steps should be From Business World 2

Selecting your Specialization : Give preference to the stream that leads to a


commercially rewarding career . Then zero in on the institution. If the pedigree of institutions is similar , opt for the one with the lowest cost structure .

Financing your aspiration : One of the best option is education loans , which have several benefits like :

o No collateral is required for them ;banks can now lend up to Rs. 7.5 lakhs to a single borrower without any collateral . o An initial moratorium period till you finish your MBA and get a job ; so there is less pressure to pay . o When you move into a job or , for that matter , the highest income bracket , you can deduct the interest cost you incur for this loan from your taxable income . 87

Higher education loans EXPLAINED

By Ashish Aggarwal 2001

From Business World

26 January

What do you need to know when you start looking for fund for your studies ?

At Home

This article describe in detail the various terms required to obtain an education loan as mentioned in Model Education Loan Scheme approved by RBI which have already been discussed above .

Going Abroad

Some options can be : ---

Generally , all top-tier schools in the US and in Europe offer loans for MBAs in partnerships with specific banks . Its preferable to go for these banks only .

International students can get merit-based grants depending on the GMAT score , academic achievements and demonstrated skills .

88

Another option is MyRichUncle.com . It works like a venture capitalist and is an innovative alternative to the loans that banks give .

89

90

RESEARCH METHODOLOGY
A research methodology defines what the activity of research is, how to proceed, how to measure progress, and what constitutes success.

A research methodology broadly constitutes : ----

1 . )

SCOPE OF THE STUDY

Scope of the study can be measured in two terms : ----

Geographical Scope

This implies the area or region from where we are going

to draw our sample i.e. area where we going to conduct our research.

The study was constrained to the NCR region. This region was chosen because of the convenience of location.

Time Scope

This implies the time we have at our disposal to conduct

our study . The time limit specified is approximately 5 months.

91

Secondary data time various sources. They are : ----

Secondary data has been collected from

Articles are collected from newspapers like Economics Times , Times of India . the articles collected are latest so that they are relevant .

Relevant articles from Journals like Business Today, Business India , Business World, India Today. The articles collected are from journals published after 2000 because of paucity of resources. These articles were chosen as they were the most relevant for the study being conducted.

Relevant articles and other data from internet.

Other such secondary data will be collected as and when needed as the study progresses.

2 . )

RESEARCH

DESIGN

A Research Design is a framework or blueprint for conducting the marketing research project . It specifies the details of the procedures necessary for obtaining the information needed to structure and/or solve marketing research problem.

92

Initially we conducted an Exploratory Research for provision of insights into and comprehension of the research . This was necessary to obtain an insight of the current situation with less expenditure on time and resources. It also lends flexibility to the study and helps in discovering previously unrecognized insights. As a result, perspective regarding breadth of the variables operating in a situation is obtained. The results obtained as a result of this research have been further used for descriptive research.

Further , the Decision Makers from various banks - were contacted .

Next step is to conduct a Conclusive Research based on the data collected during Exploratory Research . A Descriptive Research will be conducted . This includes conducting a primary survey .

This research is single cross sectional design because we have taken one sample and the sample was interviewed only once .

The method used for survey was be : Personal In-Home Interviewing method

3 . )

SAMPLE

PLAN

A Sampling plan includes definition of : ----

93

Population Target population Sample Sampling size Sampling frame Sampling technique

For our project these variables can be defined as follows : ----

Population

A population can be defined as an aggregate of all the elements sharing

some common set of characteristics , that comprises the universe for the purpose of the problem .

The population for the project All the customers who have taken loans from banks residing in NCR region.

Target Population

It is the collection of elements or objects that possess the

information sought by the researcher and about which inferences are to be made .

The target population should be defined in terms of : elements , sampling units , extent ant time .

Element : is the object about which or from which the information is desired . 94

In our study the target population is defined as who has taken a home loan from the bank.

: Any member in the region surveyed

Sampling units

is

an element or a unit containing the element , that is

available for selection at some stage of the sampling process .

Our sampling unit is : the element is the sampling unit

Extent : Extent refers to geographical boundaries . In our study extent is : ---

NCR region

Time : Time factor is the time under consideration . It is November 2005

Sampling frame

: A sampling frame is the representation of the elements of the target

population. It consists of a list or set of directions for identifying the target populations. .

Sampling frame for our study can be a List of students of IIPM who have availed education loan city directory a map 95

list of various colleges list of various banks

Sample size

: Sample size is the number of elements to be included in a study.

The sample size taken

10 Banks

Banks:

SBBJ SBI Punjab National Bank - Vidya Lakshyapurti Education Loan Scheme Central Bank of India - Cent Vidyarthi Scheme Canara Bank IDBI Money Scholar HSBC ICICI HDFC Vysya Bank

96

60 Customers

Sampling technique : A selection method where the elements are selected sequentially.

In our study Sampling technique used is : ---

Bayesian or Traditional approach with sampling without replacement Convenient Sampling has been used.

RESEARCH INSTRUMENT: The plank on which study rests is information, which has been procured as a judicious mix of both primary and secondary data. Primary Data Personal interviews conducted in different banks with the help of a well structured questionnaire Customer survey done with the help of a well structured questionnaire

Secondary Data Already published data formed the launch pad for the study. The sources of secondary data referred to include: 1. Books 2. Periodicals 3. Internet 4. Magazines 97

TOOLS OF ANALYSIS

Tabulation Pie charts Bar diagrams Means and Averages Hypothesis testing

98

99

Percentage of courses financed in maximum amount


Percentage 50% 40% 30% 20% 10% 0%
graduation Percentage 14% profession postal graduation 48% 21.00% others 17.00%

Professional courses, like M.B.A., M.C.A., B.E., M.E., B.Tech., M.B.B.S., etc. are financed in maximum amount by banks in general . The percentage is very high 48% .

21% of Post-graduate/specialized courses, like B.Sc., M.Sc., B.A., M.A., B.Com., M.Com., etc are financed .

Other courses, like computer courses, fashion designing, commercial pilot training, etc. are occupy third slot at 17%

100

School/graduation courses, like High School, B.Sc., B.Com., B.A., etc. are the next at 14% .

Usually, the courses financed should be for durations of more than a year, i.e., 12 months. Banks are also offering loans for less conventional courses such as biotechnology, fashion technology and aviation. They are usually flexible in approving and disbursing such loans. These loans occupy the others category

The reason for such high percentage in professional courses is that more and more people in India are moving towards attaining a professional qualification . And such qualification is very costly and still out of reach of many people . Hence people prefer financing it . The growing percentage is that of others category as more and more people are moving towards it .

101

Percentage of total amount the banks prefer financing

more than 90% 70-90% 50-70% less than 50% 0


0% 0%

37.50% 62.50%

0.2

0.4

0.6

0.8

From the above graph we see that most of the banks (62.5%) prefer financing 70-90% of the total amount i.e. a margin money is charged by these banks. This means that the person availing of the loan is required to contribute a certain percentage of the total amount of the fees and this amount has to be used by him first. Only 37.5% of the total banks surveyed finance more than 90%. In all the cases for loans upto Rs. 4 lakh no margin money is charged while for loans above Rs. 4 lacs for studies in India a margin money of 5% and for studies abroad 15% is charged.

The loan amount can also depend on various factors like : ---

The borrower's parents/guardians net monthly salary. Could also be calculated as being six or 10 times the monthly salary of the parent. Ultimately, however, the loan amount would depend on the discretion of the bank.

102

103

Factors that have the greatest impact on consumer's decision

33% 46%

Past experience Ads Direct Marketing efforts Friends / relatives

12% 9%

This analysis throw light on a very important point that every encounter with a person is important . Because if he is satisfied at every point of time then only he/she will continue to avail services of the bank . Hence past experience comes out to be a very important factor in determining which bank to look for in obtaining a loan or other such services.

Another important factor impact of friends and relatives can also be derived from the first factor itself. A satisfied customer will recommend a bank to their friends and relatives.

This leads to a conclusion that long-term relationship is the key to success especially in banking as observed from this study.

104

Communication Tools used by the Banks


4.5 Number of banks 4 3.5 3 2.5 2 1.5 1 0.5 0 Print T.V Direct Marketing Tools PR & others 1 3 2 4

The most popular media used by banks for advertising about their loan facility are Print and Public Relations (used by 5 and 4 banks respectively).

The banks essentially relied on word of mouth rather than deliberately using some explicit communication tools.

Communication Tools from which beneficiaries came to know of the facility


25 Number of beneficiaries 20 15 10 5 0 Print T.V Direct Marketing Tools P.R Others 15 10 4 16 20

105

On analyzing the beneficiaries questionnaires (see graph below) it became apparent that most of them (20/50) had come to know of the education loan facility provided by the particular bank through friends, relatives ( others category ) who had availed of the loan from that particular bank.

Most of the banks believe in word of mouth . Hence They believed in public relations which is also a very important source through which people came to know about the bank.

10/60 had come to know of it through the Direct Marketing efforts of the banks showing the importance of these media.

This was also a question to help us analyze the gap if any. My analysis shows that the banks clearly understand what the beneficiaries consider more important and thus their perceptions were in line with the beneficiaries expectations.

Both the PR and others category of friends and relatives is important for both the banks and customers.

Print category is the next best important source for both . 106

107

Interest Rate Charged

12.5

11.00%

12

58.00%

11.5

14%

11

12%

For loans upto Rs.4 lac banks charge an interest rate equal to their prime lending rate (PLR). This is the rate that the bank charges from its most creditworthy customers. For loans above the value of Rs.4 lac the banks generally charge PLR+1% or PLR+2%.

From the above graph we see that in the current scenario most of the banks charge a rate of interest of 12%.

108

109

Time taken to sanction the loans

o the rs 3 w e e ks 2 w e e ks 1 w eek 0 1

From the above diagram it is clear that a majority (4/10) banks take 2 weeks to get the sanction for the loan. Higher the loan amount more is the time taken for sanction as the branches have sanctioning power only upto a certain limit in case of higher loan amount the proposal is sent to the head office for approval and this takes time.

Time taken to disburse the loan to customers

1 2 4 3 2 3 4 5

3 7 9 41 10
110

o th e rs 3 we e ks 2 we e ks 1 week 0

20

30

40

50

In order to analyze the discrepancy if any, with respect to this statement by banks a similar question was asked from banks wherein they were asked about the time it took to get the loan. In this case (see chart below) it was found that the people who had availed of loan of a larger sum (7/50) had got the loan in 2 weeks time. Students availing of the loan for studies abroad had got it in a period of 3 weeks (5/50) while the students availing of the loan within the limit of Rs. 4 lac and for studies in India (38/50) had got it in a matter of 1 week.

111

Customer Complaints
Banks Perspective
5 number of banks 2 0 Delay in s anc tioning Complex doc umentation Delay in dis burs ements none 3

p r o b le m s

As was obvious most banks were not willing to share the problems faced by customers with ease thinking that it might harm their reputation. As a result 3 of the 10 banks surveyed said that the customers had no complaints whatsoever.

However of the remaining 7 banks the 2 private banks ( ICICI and HSBC ) said that the customer complained of the delays in getting the loan sanctioned.

A majority (5/10) said that the customers complained of the large number of documents required to be submitted. The banks agreed to the fact that in terms of the collaterals and guarantees required for the loan the bank was out of reach as far as the poor or not so well to-do strata of the society is concerned.

Customer Perspective

112

The same question when asked to the beneficiaries gave the following results:
24 number of banks 12 13 11

Delay in s anc tioning

Complex doc umentation

Delay in dis burs ements

others

p r o b le m s

Of the 60 consumers surveyed 11 of them also complained of the problems with regard to employees in terms of either indifferent attitude, unwillingness to help or lack of knowledge. These factors were not even in the mindset of the bank employees thus representing a major gap.

Also, none of the banks were willing to accept that the customers were not satisfied with the time taken to get the loan while on questioning of consumers 12/60 complained of this.

However the banks are quick to realize that the major problem faced by consumers is the formalities to be fulfilled in terms of the documents to be submitted.

113

50 40 30 20 10 0
io ni ng en ts en ta tio n th er s O di sb ur se m sa nc t N on e

D el ay

do cu m

in

The graph above clearly shows that the major gap lies in terms of the banks understanding that majority of customers face problems with regard to delays in disbursement of loans. None of the banks surveyed was able to identify this.

The banks were able to identify that delay in sanctioning is a genuine problem.

C om

Banks Customers

pl ex

D el ay

in

114

GAP Analysis Customers Requirement


An important question which was asked from banks as well as consumers which served as a major factor in helping me analyze where the gap existed was with regard to the banks perception of the customer requirements when taking a loan and asking the consumers directly what they considered important.

1.

PRIMARY
INTEREST RATES

FACTORS

Perception of Banks
how important is interest rate Number of banks 6 5 4 3 2 1 0 5 3 1 least important 1 somewhat important 0 cant say important very important
41 9 very important important

Customers Expectations
Number of respondents

how important is interest rate


50 40 30 20 10 0

0 least important

0 somewhat important

0 cant say

115

On analyzing the above two graphs we get a following picture : ---

50 Percentage 40 30 20 10 0 1 0 least important 1 0 somewhat important cant say 0 important 9 3 5 very important 41 Banks Customers

It becomes apparent that the banks clearly recognize that the customers value interest rate as the most important factor while taking loans as only only 1 of the 10 banks surveyed regarded this factor as somewhat important while the rest recognized the importance of this factor.

Hence we can say there is no gap.

PROCESSING FEES

116

50 40 30 20 10 0 3 1 least important 5 2 somewhat important cant say 7 4 important 2 9 1 very important 36 Banks Customers

From the above graph the gap is clearly apparent. While a majority of consumers (36/60) consider processing charges to be important as they feel it increases their burden. However only 2 of the 10 banks surveyed feel that the customers place importance to this factor.

EASY DOCUMENTATION
bank perspectve
number of banks 4 2 0 least important somewhat important 0 cant say important very important 4

bank

customers point of view


respondents Number of 30 20 10 0 least im portant som ewhat im portant cant say im portant very im portant 4 8 3 26 19

117

This factor is rated high on importance by majority of the customers (45/60) and the banks also recognize this fact i.e. their perception of the customers point of view with regard to this factor is appropriate or we can say that there is no gap.
30 26 20 10 0 4 0 least important 8 2 somewhat important cant say 3 0 important 4 4 very important 19 Banks Customers

2.

SECONDARY

FACTORS

118

FLEXIBILITY IN LOAN REPAYMENT SCHEDULE


40 30 20 10 0 2 0 least important 3 1 somewhat important cant say 0 important 4 5 very important 32 23 Banks Customers

With regard to the affordability of loan repayment schedule it is clearly apparent that the banks recognize the importance that customers attach to it, as both from the customers point of view as well as banks perspective of the customer requirements it is ranked either important or very important. Hence we can say that there is no gap.

PREPAYMENT CHARGES
30 20 10 5 0 least important 3 somewhat important cant say 2 important 2 0 0 very important

28 17 Banks Customers

15

Prepayment charges are those, which a customer has to pay in case he makes the payment of the outstanding amount before the due date. Generally banks do not make such charges 119

if it can be proved that the money is from a genuine source. However there are certain banks, which charge .25%-2% extra on the amount. However during the course of my survey it was found that the customers do not attach importance to this factor is deciding for the loan and as per the above analysis we can see that the banks clearly recognize this fact.

BANK IMAGE
30 20 16 10 0 12 7 0 least important 5 0 somewhat important cant say 2 important 3 5 very important 20

Banks Customers

A majority of the customers (36/60) place a high degree of importance to the image of the institution before/while taking a loan. This image is in terms of the brand name it enjoys usually as a result of word of mouth.

The banks also recognize this fact as 8 out of the 10 banks surveyed in their perception of the customers requirements consider it to be important. Thus we can say that there is no gap.

EASY ACCESSIBILITY
120

30 24 20 10 0 0 least important 1 somewhat important cant say 20 13 2 important 4 3 3 0 very important Banks Customers

From the above graph it is clearly apparent that there is a gap in terms of the fact that what the banks consider to be quite important for customers while taking a loan is infact least valued by the customers.

For the customers easy accessibility is not as important as certain other factors in fact he attaches no importance to this.

EMPLOYEE BEHAVIOUR
30 26 20 10 4 0 least important 8 2 somewhat important cant say 3 1 important 1 2 very important 19 Banks Customers

121

This parameter once again shows the gap. The bank employees consider their behaviour or those of others in the branch to be of minimal interest to the customer however, the analysis shows the importance of this factor in the consumers mind while taking loan.

122

3.

OTHER

FACTORS

PAST EXPERIENCE
30 26 20 10 0 4 2 least important 8 3 somewhat important cant say 19 Banks Customers 3 1 important 3 1 very important

This factor is gaining importance as the concept of long-term relationship i.e Customer Relationship Marketing is emerging as the new thing . Customers do give importance to past experience as shown by 45/60 people . Banks are also realizing it as 4 out of 10 give this importance . But there is still a gap between the two and this needs to be closed

PERSONAL ATTENTION

123

30 20 10 0 2 1 least important

29 18 7 3 somewhat important cant say Banks Customers 2 1 important 3 2 very important 22 18 12 8 2 least important 3 somewhat important cant say 10 1 important 3 1 very important Banks Customers

This factor is also gaining importance. Customers do give importance to personal attention as shown by 47/60 people . Banks are also realizing it as 5 out of 10 give this importance . But there is still a gap between the two and this needs to be closed

AMBIENCE OF THE BANK

30 20 10 0

124

For customers this factor is important to an extent as they want comfort where ever they go . But as a large proportion of education loan is provided by public sector banks which do not have very good ambience , hence there is a gap . With entry of more and more foreign players this gap will reduce due to competition.

125

GAP ANALYSIS Banks Performance

Let us now see how the banks surveyed rank themselves on the certain important parameters vis a vis the customers ranking

1.

PRIMARY
INTEREST RATES
30

FACTORS

26 20 17 10 3 0 Very poor 5 0 Poor 1 Can't say Good Very good 9 4 5 Banks Customers

9 of the 10 banks surveyed consider themselves to be charging an interest rate appropriate as per the market (competitive rate of interest) while just HSBC did not provide any ranking.

If we analyze it with respect to the customers, their ranking of their current/past financer with respect to interest rates is also good (43/60) as can be seen from the graph below Comparison of the Banks evaluation of themselves in respect of the processing fees charged by them and how the customers rate their current/past financer on this parameter.(some 126

obvious discrepancies are bound to arise as the sample size for banks was restricted to 8 and hence might not reflect a true picture)

PROCESSING FEES
Majority of the customers were actually not aware of the processing fees as it generally forms part of the interest rate charged by the banks. So it is difficult to compare the two.

DOCUMENTATION

30 24 20 19 Banks Customers 8 3 0 Very poor 4 1 Poor Can't say 3 Good 6 2 Very good

10

In terms of documentation formalities from the graph below we see that a large number of beneficiaries (24/50) were unable to decide on this parameter and 19/50 ranked their current/past financer poor on this parameter. If we take a look at the banks surveyed here again 4/10 did not comment while another 3 considered themselves to be providing

127

reasonably good service. There was just one bank ( Punjab National Bank ) which outrightedly rated itself poor on this parameter

2.

SECONDARY

FACTORS

FLEXIBILITY IN LOAN REPAYMENT SCHEDULE

The next parameter on which the banks were required to judge themselves was the affordability of loan repayment schedule.
30 22 Banks 10 3 0 Very poor 3 1 Poor 4 2 Can't say 3 Good 4 Very good Customers

28

20

128

While taking a loan the beneficiaries place a lot of importance on this factor and majority (46/50) were satisfied in this respect when it came to their financer. All the banks except HSBC (under the banks surveyed ) provide a moratorium period wherein the student starts repaying the loan 1 year after completion of the course or 6 months after getting a job and this amount has to be repaid over a period of 5-7 years which the beneficiaries find comfortable and affordable.

PREPAYMENT CHARGES
30

28

20 Banks 10 5 0 0 Very poor 12 7 1 Poor 2 Can't say 3 Good 8 4 Very good Customers

Prepayment charges are those, which a customer has to pay in case he makes the payment of the outstanding amount before the due date. Generally banks do not make such charges if it can be proved that the money is from a genuine source. However there are certain banks, which charge .25%-2% extra on the amount. However during the course of my survey it was found that the as customers do not attach importance to this factor in deciding for the loan , they cant say much about it . Banks clearly consider themselves providing good service in this respect.

129

BANK IMAGE
30 22 18 Banks Customers 6 0 0 Very poor 8 1 Poor 2 Can't say 3 Good 6 4 Very good

20

10

Very less (28/60) consider their banks image to be good. This image is in terms of the brand name it enjoys usually as a result of word of mouth.7/10 banks consider their image to be good . Their is a little discrepancy.

EMPLOYEE BEHAVIOUR
30 22 Banks 14 10 10 2 Can't say 8 3 Good 6 5 Very good Customers

20

0 Very poor

0 Poor

An important parameter which has emerged from the survey is Employee Behaviour. Whether in terms of deciding the loan amount or the bank the customers place a lot of importance on this factor. Though the banks surveyed rated themselves good on this 130

parameter due to obvious biasness the beneficiaries in general were dissatisfied in this respect from their current financer.

3.

OTHER

FACTORS

PAST EXPERIENCE
30 22 14 10 10 2 Can't say 8 3 Good 6 5 Very good Banks Customers

20

0 Very poor

0 Poor

Again although the banks surveyed rated themselves good on this parameter due to obvious biasness the beneficiaries in general were dissatisfied in this respect from their current financer.

PERSONAL ATTENTION

131

30

20

18 10 4 1 Poor 2 Can't say

16 12 3 Good 4 Very good

Banks Customers

10

0 Very poor

Most of the banks rated themselves to be good in giving personal attention to their employees . but the customers had a mixed response .

132

AMBIENCE OF THE BANK

30

28

20 16 10 10 2 Can't say 4 3 Good 5 2 Very good Banks Customers

0 Very poor

0 Poor

Here also the bank rated themselves to have good ambience but a majority of customers rated it to be poor 44/60.

The above charts and diagrams has helped us to identify and locate where the gaps exist when it comes to servicing loan to the beneficiaries.

133

134

During the course of survey aspects like Publicity Measures, Forms, Deposit Insurance & Credit Guarantee Corporation (DICGC) Scheme and Differential Rate of Interest (DRI) Norms in the context of educational loan scheme were also studied. The observations on these aspects are discussed below.

Publicity Measures

Most of the borrowers share the view that Banks have not given adequate publicity to their Educational Loan Scheme. Borrowers came to know about the Scheme either through one of their friends or by contacting the bank personally.

It was found that pamphlets, literature etc. about the educational loan scheme are readily made available to the customers on demand. However, it was felt that Banks have not made any serious attempts to popularise their Educational Loan Scheme. Certain Banks expressed the view that individual banks could not take effective initiatives and that publicity should be, managed by the Reserve Bank of India or the Indian Banks Association.

Banks need to establish proper linkages with the educational institutions to reach the target beneficiaries. Adequate publicity should be given through print and electronic media especially before the beginning of the academic sessions.

135

Forms

Some time was also expended in examining the Application Form, Agreement Form, Declaration Form, etc. which the applicant has to fill in for obtaining educational loan. It was observed that the application forms are simple and easy to fill in. Normally the applicants dont get any acknowledgement from the bank after submission of his application form. Application Form should have perforated Acknowledgement Slip at the bottom of the application and the acknowledgement slip should also indicate the probable date for sanction of the loan.

DICGC Scheme

The Deposit Insurance & Credit Guarantee Corporation Scheme covers credit risk in priority sector advances of the Bank upto 60% of default amount. DICGC has revised certain terms and conditions of this Scheme for filling of claims and the extent of liabilities with effect from 1.4.1995. Educational loan is covered in the priority sector. Discussion with the bank

authorities revealed that as a result of these changes, a large number of banks viz., Bank of Baroda, Bank of India, Canara Bank, Corporation Bank, Indian Bank, etc. have opted out of the DICGC Scheme with effect from 1.4.1995. In the circumstances, the government should formulate some alternative scheme to share the credit risk of the financing Bank for educational loan scheme.

Differential Rate of Interest (DRI) Norms 136

Since education is essentially an investment for development, there is a strong need for safeguarding the interests of the disadvantaged poor particularly in the context of inflation and increasing fees for higher education and hence family income ceilings in the context of DRI norms should be suitably raised.

The banks on the whole are aware of what the customers want the only thing that is required is to move in that direction towards satisfying them in the best possible way.

137

The analysis of the questionnaires and the interviews conducted has shown that the market of educational loans is big but it has to be tapped in a very aggressive way.

People are not very sure of the benefits like ease of paying all educational expenses including boarding, lodging expenses, food expenses etc. which they can get by applying for educational loans.

People in India have a mind set that only only those people who cannot afford their childrens education take educational loans. This mindset has to be changed; they have to be told that in case of educational loans the students do the repayment so the student should feel responsible for their educational expenses.

Factors regarded important by customers are : -Interest rate Processing fees Documentation Flexibility of loan repayment Prepayment charges Attitude of employees Past Experience Personal attention Ambience of bank 138

Factors considered important by banks are : ---

Interest fees Documentation Flexibility of loan repayment Prepayment charges Image of institution

The study of selected banks has helped me draw certain conclusions when compared with the survey with the consumers

The schemes are more or less similar in terms of the tenure, maximum and minimum amount etc.

Majority of the market of education loans is catered to by public sector banks

Though the banks promise fast sanctioning and disbursement of loans when asked to the consumers most of them were dissatisfied with it

Employee attitude plays a very crucial role when a consumer takes a loan. This aspect is ignored by most of the banks 139

Most of the consumers come to know of the scheme provided through their friends, relatives etc. as these schemes are not publicized properly even though the bank officials claim that they spend huge amounts on advertisements and publicity.

Customers consider delay in disbursements as a major problem whereas banks do not recognize this fact . Hence banks need to work upon this .

Banks need to consider relationship management seriously . Customers attach very high importance to past experience , PR , opinion of friends/relatives etc.

140

RESEARCH QUESTION AND HYPOTHESIS

RQ : Is there any difference between the customer expectations and banks perception of customer expectations?

H0: There is no difference. H1 : There is a significant difference.

141

142

143

LIMITATIONS

Like all studies based on samples, this study also suffers from some limitations.

The questionnaire was filled by the Bank employees who because of certain

apprehensions might not have given correct details. For instance if the customer complained of the indifferent attitude of the employees at the bank the employee but obvious will not tell this.

A recent experience ( good/bad ) might influence, the perception of the

respondents and induce a bias in their ratings

Example: a recent bad experience with the employee might change the beneficiariess perception towards the organization

The sample size selected (banks and customers) might not depict a true picture of the population

144

The extent of the project was restricted to NCR only, which might not represent a true picture

It is difficult to get appointments from banks senior executives

Bank employees may give biased answers which may lead to incorrect results

Time available for the completion of the project was limited

Survey was mostly based on human perceptions related to various factors, which may lead to a subjective result.

145

146

147

BIBILOGRAPHY

Books

Kotler Philip (2003), Maketing Management, Prentice Hall of India Pvt. Ltd. Kuntz L David (2003), Services Marketing, John Wiley and Sons. Sciffman and Kanuk (2003), Consumer Behaviour, Tata Mc Graw Hill Inc. M Y Khan (2003), Management Of Financial Services, Tata Mc Graw Hills Inc.

Internet Sites

www.hindubusinessline.com www.indiainfoline.com www.ncaer.com www.moneycontrol.com 148

Magazines

Business World Business India Business Today

149

150

151

QUESTIONNAIRE FOR ORGANISATIONS

Q1.

Which type of courses do you finance in maximum amount?

Graduation

Professional

Post Graduate

Others

Please specify _____________________________

Q2.

What percentage of the total amount do you prefer financing?

less than 50 %

50-70 %

70-90 %

more than 90 %

Q3.

Which of the following factors do you think have the greatest impact on consumer's decision?

Past Experience

Ads

Direct Marketing efforts

Friends/ relatives

152

Q4.

What kind of communication tools do you use?

Print

T.V

Direct Marketing

Radio

Friends / Relatives

Others

Q5.

What documentary evidence do you take?

_____________________________________________________________________ _______________________________________________________________

Q6.

What is the interest rate charged?

_________________________________________________________________

Q7.

How much time do you take to disburse the loan ?

1 week

2 weeks

3 weeks

153

others

. Please specify ____________________________

Q8.

Do consumers complain about any of the functions related to the organization? If yes, which of the following?

Delay in sanctioning the loan Delays in disbursements

Complex documentation Others

Q9.

Please rate your perception of the customer requirement when they are looking for education loan schemes? Rate only the factors required .

Factors

1 2 Not at all imp Somewhat imp

3 Cant say

4 Imp

5 Very Imp

PRIMARY
Interest rate Processing fees Documentation

SECONDARY
Flexibility of loan repayment Easy Accessibility Prepayment charges Image of institution 154

Employees Behaviour

OTHER FACTORS
Past Experience Knowledge of Employees Personal attention Ambience of bank

Q10. How well do you think you are meeting the above needs? Rate only the factors required

Factors

1 Very Poor

2 Poor

3 Cant say

4 Good

5 Very Good

PRIMARY
Interest rate Processing fees Documentation

SECONDARY
Flexibility of loan repayment Easy accessibility Prepayment

155

charges Image of institution Attitude of employees

OTHER FACTORS
Past Experience Personal attention Ambience of bank

Q11. What steps are you taking to remove the gaps?

__________________________________________________________________ _____________________________________________________________________ _______________________________________________________________ Q12. Do you agree that finance schemes have allowed more people to pursue higher education ?

Yes

No

156

Personal Details:

Name

Organization

Designation

Tel no.

157

Questionnaire for consumers

Q1.

Which course are you studying ?

Graduation

Professional

Post Graduate

Others

Please specify _____________________________

Q2.

Specify the name of the organization from where you taken education loan?

____________________________________________________________________

Q4.

What documentary evidence did the bank require before providing finance?

_____________________________________________________________________ _____________________________________________________________________ __________________________________________________________________

Q5.

What percentage of the total amount do you prefer financing?

less than 50 %

50-70 %

158

70-90 %

more than 90 %

Q6.

How did you come to know of the loan facility provided by the organization?

Print

T.V

Direct Marketing

Radio

Friends / Relatives

Others

Q7.

How much time do it take to get the loan ?

1 week

2 weeks

3 weeks

others

. Please specify ____________________________

Q8. How did you get the loan?

Bank branch

DSA

E-Banking

Mobile Banking

159

Q9.

Did you face any problems while dealing with the organization? If yes, which of the following

Delay in sanctioning the loan

Complex documentation

Delays in disbursements

Others

Q10. Rate the importance of the following factors when you are looking for an education loan scheme . Rate only the factors required .

Factors

1 2 Not at all imp Somewhat imp

3 Cant say

4 Imp

5 Very Imp

PRIMARY
Interest rate Processing fees Documentation

SECONDARY
Flexibility of loan repayment Easy Accessibility Prepayment charges Image of 160

institution Employees Behaviour

OTHER FACTORS
Past Experience Personal attention Ambience of bank

Q10. How well do you think you are meeting the above needs? Rate only the factors required .

Factors

1 Very Poor

2 Poor

3 Cant say

4 Good

5 Very Good

PRIMARY
Interest rate Processing fees Documentation

SECONDARY
Flexibility of loan

161

repayment Easy accessibility Prepayment charges Image of institution Attitude of employees

OTHER FACTORS
Past Experience Personal attention Ambience of bank

Q12. Do you agree that finance schemes have allowed more people to pursue higher education ?

Yes

No

162

Personal details

Name:

Age:

Less than 20

21-25

26-35

above 35

Address:

Tel no.:

163

164