After completing my MBA I got a gap of 4 months before joining my company. In this gap I got the opportunity to travel several parts of India by Road. There were two things common all over India. Firstly, it was WIP construction of roads and flyovers all over India. Second common feature was mushrooming of private colleges giving degrees in engineering and management. Each course costs >6Lakhs Rupees and I have just experienced that how tough it is to get a job in these tough recessionary times even after having professional degrees from good college.
I. Overview
Currently 35% of the population in India is <20years in age. Approximately, 420.5 millions of India Population will look for courses for UG and PG courses in coming years. I know most of them will even not reach 12th std due to poverty, financial constraints and other family commitments. But if we assume even pessimistically that 100 millions of the population decides to take a loan then also there is a big financial problem brimming in India. One assumption is that these 100 millions students belongs to middle class families with average academic record as they could not make into premier Government colleges.
II. Education Loan Provision in India
1. In all banks a student can avail a loan of INR ~4 Lakhs (3.96 Lakhs to be exact) without pledging any collateral. He/she needs a guarantor but it's not even guarantor responsibility to repay the loan if the main recipient defaults the repayment of loan.
2. If they don't land up with a job then after few years they can declare themselves bankrupt and then they do not need to repay there loans.
3. Currently India's unemployment rate is 9.4%.
4. And out of 10cr it seems difficult even if we will have 10% jobs opportunity in coming times.
III. Total value of loans given by banks
3.96 Lakhs* 100000000= 396000000000000 ie Rs 3.96 Trillion= $88 billion dollars. The Indian GDP value is just above $1 trillion dollar and if close to ~10% of that money slowly gets converted into Non-performing assets then in coming times it is signs of deep financial crisis for India as the defaulter list of education loans increased rapidly after 2008 recession.
IV. Smelling a Collusion
I personally believe that our bankers are always proactive in decision making since they managed well the 2008 financial global crisis or 2001 dot com recession or 1997 south-east Asia financial crisis. But here the problem is not from external world but it is because of few greedy men of our country.
It is a collusion between politicians, corporates and bankers in order to create personal wealth in least time. In the last 10 years more than 90% of private colleges opened are associated to politicians either by owning the colleges or taking bribes in clearing the licenses for colleges. Public money first goes to banks for savings and same is dispensed in form of education loan to the pockets of politicians and businessmen which never comes back to banks and then categorized into non-performing assets(NPA's). Bank is just a catalyst as the bankers are not able to visualize this crisis in coming times.
In the end, I hope that this nexus is deciphered soon by bankers and policy makers and avoids drifting the country into unmanageable financial crisis with millions of unemployed young professionals whose family money saved in banks is written off due to bad debts.
I. Overview
Currently 35% of the population in India is <20years in age. Approximately, 420.5 millions of India Population will look for courses for UG and PG courses in coming years. I know most of them will even not reach 12th std due to poverty, financial constraints and other family commitments. But if we assume even pessimistically that 100 millions of the population decides to take a loan then also there is a big financial problem brimming in India. One assumption is that these 100 millions students belongs to middle class families with average academic record as they could not make into premier Government colleges.
II. Education Loan Provision in India
1. In all banks a student can avail a loan of INR ~4 Lakhs (3.96 Lakhs to be exact) without pledging any collateral. He/she needs a guarantor but it's not even guarantor responsibility to repay the loan if the main recipient defaults the repayment of loan.
2. If they don't land up with a job then after few years they can declare themselves bankrupt and then they do not need to repay there loans.
3. Currently India's unemployment rate is 9.4%.
4. And out of 10cr it seems difficult even if we will have 10% jobs opportunity in coming times.
III. Total value of loans given by banks
3.96 Lakhs* 100000000= 396000000000000 ie Rs 3.96 Trillion= $88 billion dollars. The Indian GDP value is just above $1 trillion dollar and if close to ~10% of that money slowly gets converted into Non-performing assets then in coming times it is signs of deep financial crisis for India as the defaulter list of education loans increased rapidly after 2008 recession.
IV. Smelling a Collusion
I personally believe that our bankers are always proactive in decision making since they managed well the 2008 financial global crisis or 2001 dot com recession or 1997 south-east Asia financial crisis. But here the problem is not from external world but it is because of few greedy men of our country.
It is a collusion between politicians, corporates and bankers in order to create personal wealth in least time. In the last 10 years more than 90% of private colleges opened are associated to politicians either by owning the colleges or taking bribes in clearing the licenses for colleges. Public money first goes to banks for savings and same is dispensed in form of education loan to the pockets of politicians and businessmen which never comes back to banks and then categorized into non-performing assets(NPA's). Bank is just a catalyst as the bankers are not able to visualize this crisis in coming times.
In the end, I hope that this nexus is deciphered soon by bankers and policy makers and avoids drifting the country into unmanageable financial crisis with millions of unemployed young professionals whose family money saved in banks is written off due to bad debts.
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