Bad Loans and Wilful Defaulters: Need for Change in Financial Management? - A Study on Educational Loan and Rural Graduates
Dr Janetius. S.T., Shilpa. S. & Eswaran.
S.
June 22, 2013
The mushrooming colleges all over India both in metropolitan
cities as well as semi-rural towns have changed the outlook of young people and
their vocational preference significantly. Unlike a few decades ago when only
economically well-off adolescents generally opt for higher education in the
metros and institutes of reputation, today’s youth venture in to higher
education irrespective of their economic background. Thanks to the government
policy that started in the last decade for easy accessibility of educational
loans, students started to seek funding for their higher education from
external sources, like government and private sector banks.
The increased number of students in search of degrees paves
way for the rapidly escalating number of educational institutions with poor
infrastructures, undeserving and unqualified candidates as faculty members and
inflated tuition fees. These in turn contribute to the bigger number of
unskilled graduates ultimately ending as loan defaulters. Since loans up to Rs4
lakh do not require collateral pledge, defaulters have been on the rise and it
is hard for the Banks to recover educational loans amounting to higher bad
loans or non-performing assets (NPA).
The study identifies three categories of wilful defaulters
each with specific reasons for their non-payment of loans.
i) Defaulters with genuine cause
ii) Genuine wilful defaulters
iii) Defaulters with unconventional reasons
The third category - defaulters of unconventional reasoning get their thought pattern and attitudes from their parents who are mainly
farmers. Majority of the subjects are coming from
rural agricultural families and they are familiar with the loan-waiver schemes
political parties announce in their election manifesto or during budget
presentations. In the recent times, P. Chidambaram, Finance Minister of India,
announced a relief package for farmers in 2008 called the Agricultural Debt
Waiver and Debt Relief Scheme beneficial for nearly 30.7 million small and
marginal farmers (The Hindu, 2008). Similar schemes have been announced by
state governments too. Therefore the mind-set of the rural younger generation
is filled with expectations of freebees, loan-waivers and relief packages to pay-off
the loan. The loan-waiver schemes have created a poor financial management
schema among the educated rural younger generation that needs a change.
