Financial burden mounting for those studying with bank loans from here.
The depreciating rupee has Aurangabad-based Aditya Ambarkar worried. He got admission early this year to North Carolina State University, US. The falling rupee is upsetting financial calculations for his third semester fee.
"Usually,while converting the loan amount, banks take into account a notional exchange rate, factoring in currency fluctuations. However, such unprecedented depreciation is surely not factored in," says S Govindan, general manager, Union Bank of India.
Anirudha Hatwalne of Vishwashri Consultancy says new students are warned about currency rates. But those already admitted face the real brunt, as they can't quit mid-way.
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Here's how it works. Banks consider students' fee and living expenses (partly), convert the amount in rupees and sanction the loan. The fee is then disbursed in tranches and remitted directly to the university. Each instalment so transferred is converted into dollars at the prevalent rate. Therefore, a falling rupee means a higher outgo from the total loan.
For instance, Ambarkar has to pay $10,420 every semester. He went to the US in January, when the rupee was at Rs 45.41. He paid around Rs 4.73 lakh as his first semester fee. Fortunately, the rupee appreciated to 44.42 when his second semester fee was due in July. Loan disbursed = Rs 4.62 lakh.
However, this month Ambarkar will be paying the third semester fee and the rupee is near 54 per dollar. As a result, total outgo will be Rs 5.52 lakh, higher by almost Rs 1 lakh. He was sanctioned a Rs 20 lakh loan, the maximum allowed by most public sector banks for students going abroad. Hence, he will not get any more.
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Says Harsh Roongta of apnapaisa.com, "Students who are paying the last tranche of their fees will be most impacted. For others, the problem has been postponed." As the bank pays in tranches from the sanctioned amount, calculated at the rate prevalent on the disbursal date, rupee depreciation mid-way will quicken the outflow. Leaving a gap at the time of paying the last tranches.
For instance, Ambarkar's bank has disbursed Rs 14.87 lakh till now (including the December tranche). Loan left = Rs 5.13 lakh. Next year, he will have to pay the last tranche of $10,420. If the rupee appreciates to 45, Ambarkar will pay Rs 4.68 lakh, which can be covered by the loan. If it appreciates only to 50-levels, he will slightly overshoot, with a requirement of Rs 5.21 lakh. However, if the rupee stays at the current levels, Ambarkar will need Rs 5.60 lakh ($=Rs 53.70). A deficit of around Rs 47,000. Any extra amount will not be funded by the bank. Then, the living expenses are also covered only partly, so he will need to shell out more.
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If you haven't exhausted the Rs 20 lakh limit entirely, there is hope for some respite in the form of a higher loan amount. In this case, banks may or may not ask for additional collateral.
But be ready, then, to pay an extra margin amount. Typically, you are required to pay about 15 per cent of the total expense and the rest is funded by the bank. So, if the loan amount goes up, so will the margin.