Bank of Baroda expects uptick in education loans, targets 11% market share

Even as Indian banks reported an uptick in stressed education loans, public sector lender Bank of Baroda (BoB) expects a growth in education loans portfolio during the financial year 2019-20.

According to the Indian Banks’ Association (IBA), the non performing assets (NPA) in the education vertical jumped to 8.97% in March 2018 vis-a-vis 7.29% in March 2016. The bad loans of public sector banks (PSB) in the education sector stood at 5.70% in March 2015.

BoB, which merged smaller PSB peers Dena Bank and Vijaya Bank with itself, is targetting a post-consolidation market share in education loans of 11% by the end of current fiscal even as the segment has been reporting negative growth over the past 2-3 years.

“Our market share of education loans stood at 4% by end March 2019, which we target to hit 11% by March 2020 post consolidation with Dena Bank and Vijaya Bank,” BoB Head (Mortgages & other Retail Assets) Virendra Kumar Sethi told Business Standard.

He said while the banking sector had posted a negative growth of -2% in education loans last year, BoB logged 21% growth in the sector. “We are aggressive on all retail loans, including education loans, where our average ticket size is among the highest at more than Rs 12 lakh.”

As of March 31, 2019, he said, the education loans portfolio of commercial banks and non banking financial companies (NBFC) stood at nearly Rs 72,000 crore, of which the banks accounted for roughly 95%, or Rs 68,000 crore.

Meanwhile, BoB has started offering collateral free education loans of up to Rs 40 lakh and Rs 20 lakh to students of premier institutions including Indian Institute of Management, Lucknow (IIM-L), Indian Institute of Technology, Kanpur (IIT-K), select faculties of Banaras Hindu University (BHU) and Aligarh Muslim University (AMU) etc.

“In 2016, we had introduced innovative systems for robust due diligence and customer service, which included making retail loans processing centralised, engaging with channel partners and risk based pricing mechanism. This helped the Bank to expand its business and keep the NPA under control,” he noted.

Besides, BoB is also bullish on other retail loans segments like home loans and vehicles loans, where the bank claims to have over-performed industry by posting 23% and 51% growth, respectively.

“While, rating agency ICRA has projected home loans to grow by 15% in the current fiscal, we are targetting 25% growth. Similarly, we are eyeing 35% growth in vehicles loans against the projected growth of segment by 6-7%, since vehicles sales are down by 20%,” Sethi underlined.

Speaking on the the stress in the home loans segment, Sethi said that NBFCs had booked losses, primarily owing to a lax due diligence processes. BoB currently has a home loan book of Rs 54,000 crore and it accounts for 11% of the bank’s total advances.