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RBI Governor raises questions on the issue of easy credit for education abroad

Emphasizing on the issue of easy credit, Raghuram Rajan, the RBI Governor , has said that banks are actually subsiding education loans for foreign studies under the priority sector lending (PSL) segment.

“We actually subside, in the priority sector, student loans to study abroad. Are students studying abroad are the neediest in the country or is it the most important”, said the RBI Governor while addressing bankers at an industry summit here last week.

The governor stressed on the need for a rethink on the matter of easy credit and also raised the question on why some industries were favored than others. He said “This is something people have got used to. I am not saying it is bad, but it is something you should ask questions about. We have to keep asking ourselves, why some sectors should get more easy credit than others”.

It is worth noting that under the sector of priority lending, banks are required to lend up to 40 per cent of their overall credit to marginalized sectors like agriculture, small business, education as well as housing. As per their base rates, banks lend to such identified sectors. Apparently, the shortfall of their targets goes to the low yielding Rural Infrastructure Development Fund (RIDF).

It has been observed that private sector and overseas banks generally fail to meet these targets. Owing to lower number of branches, some state run banks too fall short of the required target.

Under the present rule, a loan of under INR 20 lakh taken by an individual to pursue overseas studies qualifies as priority sector lending. Recent Reserve Bank of India reports reveal that the outstanding education credit as on September 15 stood at INR 579.02 billion. The credit includes loans for studding within the country as well as aboard.

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