By Priya Nair
The increasing rush to get admission in a reputed engineering or medical college has led to mushrooming of coaching centres, but has also opened a new avenue for banks to increase their customer base. Banks are now offering loans to pay the fees of coaching classes for competitive exams.
Career Point Infosystems, a Kota-based coaching institute, which trains students for IIT entrance exams, is one of the institutes recognised by the Central Bank of India . Several students avail of such loans, especially those who are not from Kota, Rajasthan, says Pramod Maheshwari, the bank’s chief executive officer.
Following the change in engineering entrance exam rules, according to which only students in the top 20 percentile can appear for the IIT entrance, the class XII board exams, will also become a competitive exam, thereby leading to more demand for coaching classes, say experts.
Maheshwari says a jump in fees for board exams is also likely. “Earlier, students focused only on clearing their board exams. But now, to qualify to appear for IIT entrance exams, they will have to take board exams more seriously. So, now, board exams will become competitive and coaching would be more important and expensive,” he says.
Ram Sangapure, general manager, retail, Central Bank of India says demand is good in certain pockets, such as Mumbai and Kota, where there are many coaching classes which offer training for IIT entrance exams.
These are unsecured loans in the range of Rs 200,000- 400,000. The money is paid directly to the coaching institute through bankers’ cheques or demand drafts.
Central Bank does not ask for any security or collateral, but parents have to become co-borrowers.
Corporation Bank does not ask for security if the parent has a salary account with the bank. But in other cases, it asks for security, such as LIC policy or National Savings Scheme certificates, says an official of the bank. “The loan is not given to the student, but to the parent,” he says.
These loans are of shorter tenure than educational loans as the moratorium period (the time after which the loan repayment starts) is lesser than that of a regular education loan. The repayment commences three months after the last disbursement of the loan. The maximum repayment period is 36 months or three years, including a moratorium period of three months.
Against this, in case of a regular education loan, the student gets up to 10 years to repay the loan. This includes a moratorium of three years, followed by a repayment period of seven years.
The interest rate on the loan for coaching class fees is comparable to educational loans. Banks charge around 11-12.5 per cent. Since the amount is not big, the other option is to take a personal loan. But the interest rate would be higher as most banks charge over 15 per cent for an unsecured personal loan.
Apart from the coaching class fees, the loan also covers other expenses the student may incur.
“Many students appearing for entrance exams are from rural areas and move to cities for attending coaching classes. Therefore, they have to pay for boarding and lodging as well. Hence, these loans cover such expenses as well as coaching class fees,” says Sangapure.
The new format for engineering entrance exams may lead to a five-six per cent increase in demand for loans for coaching classes fees, Sangapure says.