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The year 2020 was truly Annus Horribilis for people, governments and budgets. However, defence is probably one sector that didn’t get affected much. Buried in the year’s headlines of COVID-19, several defence deals and developments went unnoticed. Each of these was of long-term global and domestic significance.

Technologically the most important development was when Boeing Australia unveiled its ‘loyal wingman’ attack drone. Unlike current drones which have limited manoeuvrability, this is a full-fledged combat capable beast. Perhaps more importantly it thinks for itself in most situations.

The Achilles heel of the United States (and western) drone complex was that they require humans controlling them from ground stations. The problem with this is, that these drones are linked to their operators through satellite links, consuming huge amounts of incredibly expensive bandwidth for data, but also are highly vulnerable to an emerging generation of anti-satellite weapons.

The loyal wingman concept (and the similar but significantly less advanced Sukhoi S-70 Okhotnik-B) does away with this, accomplishing large parts of its mission autonomously through artificial intelligence, but is also directly controlled by the manned aircraft it flies with, adding significantly to that aircraft’s lethality, while significantly reducing vulnerability. In many ways this concept marks the first significant step towards completely autonomous combat not dependant on humans (leaving aside the moral, legal and technological implications).

Politically, the Turkish order of a second batch of S-400 missile systems from Russia was the highlight of 2020. In a sense this decision is a microcosm of not just the deteriorating quality of decision-making in Ankara, but also the widening rift within NATO over Syria and Mediterranean gas reserves.

The year 2020 was truly Annus Horribilis for people, governments and budgets. However, defence is probably one sector that didn’t get affected much. Buried in the year’s headlines of COVID-19, several defence deals and developments went unnoticed. Each of these was of long-term global and domestic significance.

Technologically the most important development was when Boeing Australia unveiled its ‘loyal wingman’ attack drone. Unlike current drones which have limited manoeuvrability, this is a full-fledged combat capable beast. Perhaps more importantly it thinks for itself in most situations.

The Achilles heel of the United States (and western) drone complex was that they require humans controlling them from ground stations. The problem with this is, that these drones are linked to their operators through satellite links, consuming huge amounts of incredibly expensive bandwidth for data, but also are highly vulnerable to an emerging generation of anti-satellite weapons.

The loyal wingman concept (and the similar but significantly less advanced Sukhoi S-70 Okhotnik-B) does away with this, accomplishing large parts of its mission autonomously through artificial intelligence, but is also directly controlled by the manned aircraft it flies with, adding significantly to that aircraft’s lethality, while significantly reducing vulnerability. In many ways this concept marks the first significant step towards completely autonomous combat not dependant on humans (leaving aside the moral, legal and technological implications).

Politically, the Turkish order of a second batch of S-400 missile systems from Russia was the highlight of 2020. In a sense this decision is a microcosm of not just the deteriorating quality of decision-making in Ankara, but also the widening rift within NATO over Syria and Mediterranean gas reserves.

Azerbaijan showed that the original intended purpose of drone — to attack tanks was still relevant but added a significant new paradigm of modern warfare — that drones operating in co-ordination with brigades of hired international terrorists (rather than against them) was a potent new battlefield equation.

Elsewhere Japan decided to operationalise its momentous decision to convert its ‘helicopter carrier’ into an aircraft carrier armed with F-35 fighters. Given Japan’s deep pockets, tenacity and technology, this will be the critical action that decides the balance of forces against China in this century.

Finally, there was India’s first ever lease of Reaper drones from the US. This marks the first break in the ‘buy foreign or buy Indian, but buy’ mentality of the forces. Taken to its logical conclusion, such leasing, could open up a whole new set of options in fixing India’s disturbingly deteriorating levels of combat equipment.

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Dear Reader,

Did Socrates really say, 'In the face of adversity, we have a choice. We can be bitter, or we can be better'? In his statement on the monetary policy, RBI governor Shaktikanta Das claimed the quote was attributed to Socrates. A quick Google search finds the quote, but no mention of the Greek philosopher ever having said that. But then, who knows, although it’s a bit tricky for an RBI governor to quote a guy whose most famous saying is, ‘All I know is that I know nothing’ or words to that effect.

Das also says, ‘it is never too late to seek a newer world’ and ‘to strive, to seek, to find and not to yield’, borrowing the words, of course, from Tennyson’s Ulysses.

Perhaps taking inspiration from these upbeat words in the governor's statement, the RBI’s Monetary Policy Committee decided to keep its policy rates and liquidity stance unchanged, in spite of revising its inflation projections higher. What’s more, it says, ‘inflation is likely to remain elevated, barring transient relief in the winter months from prices of perishables’. It also improved its growth projections from its earlier estimates. The PMI data for November show precisely this combination -- continuing expansion in both manufacturing and services, but higher inflation.

Other indicators too reflect the improving economy. Our recovery tracker shows a very healthy trend this week, with falling unemployment, higher retail car sales and increased power consumption. Bank lending has picked up sharply. The auto industry is cruising along comfortably, although there could be speed bumps along the way. Lumax Industries will capitalise on that recovery. Indeed, there are signs of a rebound in capital goods companies too, although government support is essential. Good luck with that.

Given the growth revival, we took a look at which mid-cap cement companies could benefit from the increase in infrastructure and housing activity. Railway engineering companies are seeing a sharp rise in business. Engineers India’s fundamentals are improving, as are those of JSW Energy. Laurus Labs’ new lever of growth looks so promising that it merited two stories, here and here. The supply situation has normalised for Sharda Cropchem. Business momentum in Transport Corporation of India looks good, while AU Small Finance Bank’s collection efficiency is now near normal. The icing on the cake is that, contrary to expectations, the smaller FMCG companies have done far better than the bigger ones.

What the RBI is essentially saying is that it will keep monetary policy accommodative as long as necessary – at least during the current financial year and into the next financial year---in spite of higher inflation and the economic recovery.

That is wonderful news for the markets. The party in equities is getting wilder and is fast developing into a first-class binge, aided and abetted by central banks across the world, including the RBI. After all, real bond yields in India are not only negative, but the lowest among major economies. Globally, the prospect of vaccines in a few months has led to, as this FT piece tells us, an ‘everything rally’.

The JP Morgan Global Composite PMI for November indicates that the recovery continues and the latest OECD growth projections show some light in the covid-19 gloom. At 57.5 in November, China’s Composite PMI signalled the steepest increase in total Chinese output since March 2010 -- small wonder that China’s voracious appetite for steel is benefiting India’s steel producers. All these optimistic signals have led Mark Matthews, Research Head (Asia) at Bank Julius Baer & Co Ltd, to predict earnings growth in India to be over 25 percent in the next two years.

Of course, everything is far from being back to normal, which is why the RBI is so keen to push growth, never mind its inflation target. The RBI’s consumer confidence survey in November showed that only 52 percent of respondents believed their employment prospects would improve over the next one year—a third said they expect their job prospects to get worse. Only 51 percent said they expect their income to increase in the next one year. And as for the consumption recovery that everybody is eagerly looking forward to, only 28.7 percent of those surveyed said they would increase discretionary spending in the next one year, while 34 percent said they would curb non-essential spending.

That is why we underlined two reasons why the banking sector is not yet out of trouble. Muthoot Finance’s MD says they will grow more than 15 percent this year, but what do all the gold loans tell us about financial conditions among the masses? And don’t forget that globally, food inflation has reared its ugly head. Add to that the possibility that the farmers’ agitation may stymie a bold attempt at reforms.

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India Inc and experts on Friday said the RBI''s decision to hold interest rates will support economic recovery in the aftermath of the COVID-19 pandemic and that they expect the central bank to maintain an accomodative stance in the near future.

The Reserve Bank of India (RBI) on Friday left interest rates unchanged for a third straight meeting as inflation stayed stubbornly high, and said the economy was recuperating fast and would return to positive growth in the current quarter itself.

The benchmark repurchase rate will be maintained at 4 per cent, RBI Governor Shaktikanta Das said.

The six-member Monetary Policy Committee (MPC) retained its accommodative stance, signalling its intentions to cut interest rates whenever the situation eases.

A spike in consumer prices forced RBI to pause after cutting rates by 115 basis points this year.

"There has been a substantial upgrade to the overall growth forecast for the second half of the current fiscal. This is encouraging but given the stress the economy had faced on account of COVID-19, we anticipate that policy support, both from the RBI and the government, will be required well into the next year," Ficci President Sangita Reddy said.

Chandrajit Banerjee, Director General, CII said it has been the right decision by RBI, given that adequate thrust on nurturing the growth impulse is required.

"Industry is also buoyed by RBI''s willingness to use all instruments at its disposal to ensure availability of adequate liquidity in the financial markets. This is a necessary pre-requisite for fostering the growth recovery," he added.

''''Given the inflationary challenges, it is no surprise that the RBI-MPC has kept the policy repo rate unchanged at four per cent. However, we must applaud the MPC for staying on course with regard to accommodative interest rate stance," Assocham Secretary General Deepak Sood said.

The growth projections by RBI, such as positive growth in second half of FY2021 and revised real GDP contraction at 7.5 per cent, are inspiring and will build confidence in the economic and business activities going forward, PHDCCI President Sanjay Aggarwal said.

"Going ahead, we expect accommodative stance to continue at least in next financial year and there is further cut in repo rate if inflation comes down," he added.

Nitin Sharma, Director Research Fidelity International India said the MPC''s pronouncement on continuing the accommodative stance for as long as needed and observation of an improving recovery path will give comfort to markets.

Ashish Shanker, Deputy MD and Head of Investment, Motilal Oswal Private Wealth Management said an accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam.

Ramesh Nair, CEO & Country Head (India), JLL, said the RBI''s decision augurs well for the economy.

Mayur Dwivedi, Head- Strategy, M&A, Investors Relations at Religare Enterprises, said the RBI''s decision underlines the central bank''s focus on reviving growth in the aftermath of COVID-19 pandemic.

The central bank, which had previously expected the economy to shrink 9.5 per cent in the year to March, revised its forecast after a shallower-than-expected decline in the gross domestic product (GDP) in the July-September quarter.

Das said high frequency indicators point to a recovery gaining traction, with double-digit growth in passenger vehicles and motorcycle sales, railway freight traffic, and electricity consumption in October.

The GDP, he said, will grow by 0.1 per cent in December quarter and by 0.7 per cent in the following three months. Overall, the 2020-21 fiscal will end with a 7.5 per cent de-growth.

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India's largest lender State Bank of India offers eight maturity options for retail fixed deposits, or fixed deposits up to Rs 2 crore. The maturity period starts at seven days and extends to as long as 10 years.

SBI offers interest rates of 2.9 percent to 5.4 percent to its general depositors and 3.4 percent to 6.2 percent to its senior citizens' customers on retail FDs.

SBI changes interest rates from time to time on the basis to align them with benchmark rates. These interest rates are effective from September 10.

Check out SBI fixed deposit rates:

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Government data released on Friday showed the economy shrank 7.5 percent in the July-September quarter, performing better than analysts' expectation of an 8.8 percent contraction as lockdowns were eased and some pent-up demand was met. In the April-June period, the economy shrank 23.9 percent.

Annual growth of 3.4 percent in farm sector and 0.6 percent in manufacturing during the September quarter has raised hopes of an early recovery and some service sectors such as trade, hotels and transport contracted at a much slower pace compared with the April-June period.

Trade, hotel, transport, communication & services related to broadcasting reported a contraction of 15.6 percent in the September quarter, against a contraction of 47 percent in the previous quarter.

Farmers, benefiting from a bumper crop, are lapping up tractors while demand for personal vehicles, due to a lack of public transport and the need for safer travel options, has boosted sales of cars and motorcycles.

Maruti Suzuki, India's biggest carmaker, had a 10 percent growth in rural sales between July and September versus a 4 percent rise overall, led by small, entry-level models, said Shashank Srivastava, executive director, marketing and sales. 

Since the end of May, when the government lifted a ban on flights, monthly domestic passenger traffic has more than doubled from 2 million in June to over 5 million in October. But that is still down from about 12 million a year ago. India's biggest carrier IndiGo and rival Vistara are seeing an uptick in business travel but to a much smaller extent than before. 

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India took a giant leap forward by launching the New Education Policy 2020 (NEP 2020) on July 29, three decades after the last major revision to the policy in 1986. The NEP 2020 advocates three key thematic developments: One, a move from content-driven pedagogy that inspired rote learning to conceptual testing; two, a 360-degree assessment covering educational, mental, and physical well-being of the students, and; three, an experiential approach through vocational skills, mathematical and computational thinking, and new-age skills such as coding and data science.

The motivation is to make Indian learners truly future-ready, and global citizens. The Government of India seems intent in rolling out the vision in terms of curriculum revision, teacher-training, and equipping schools for ICT-enabled and assessment-driven evaluation over the next few years. This is critical for India to truly reap the demographic dividend through re-skilling, vocational training, and job creation.

The objective is noble, and the policy is timely. However, the success and pace of implementation will depend on how successfully the government can scale five key challenges.

Curriculum And Content

The NEP calls for curriculum and pedagogical changes. The boards which conduct examinations will need to re-think how they assess students and what the learning content rubric should be. School textbooks will need realignment too. Given that 87 percent of K12 learners in India are in the schools with annual tuition fee of less than Rs 12,000, these changes will need to be easily cascaded across tiers of schools.

Teacher Availability

Over 250M-plus students are estimated to enrol in K12 schools in India by 2030. At a teacher-student ratio of 1:35, India would need an estimated 7M-plus teachers to address this burgeoning student population who will need to have graduated through the defined B.Ed programme for 12th pass, graduates and post-graduates for four, two and one year respectively.

Teacher Skilling

Teaching is one of the low-paid professions in India with an average teacher earning around Rs 200,000 per year. Given these constraints, experiential learning, and concept-oriented teaching, versus the currently prevalent printed content-oriented teaching will be tough.

A comprehensive National Curriculum Framework for Teacher Education has also been announced in the NEP in addition to Teacher Eligibility Tests (TETs) to create a talented and curated pool of educators who can impart quality education to the students. However, the current pool of educators needs to be orientated towards these teaching techniques.

Until the structural constraint in teacher remuneration is not corrected in the education ecosystem, the NEP implementation in spirit and form will stay challenged. Rollout of such a curriculum could produce unintended academic results for underprivileged learners who will now not have books or other supplementary aids to fall back on.

Technology At Scale

Digital infrastructure of similar scale will be needed using digital classrooms, remote expertise-driven teaching models, AR/VR tools to bridge gaps in physical teaching and laboratory infrastructure, uniform assessments across schools even in remote villages, career counselling and teacher training aids.

Evaluation Infrastructure

Under the NEP, examinations are being advised to transform towards a culture of assessment with continuous tracking of learning outcomes, a focus on higher order and foundational skills, and AI-based software progress tracking to enable students to make optimal career choices. Continuous assessment requires schools and teachers to innovate on evaluation approaches and assignments that are thought-provoking and require students to apply themselves.

Compared to theory-based-examinations that have unilateral questions and answers that are easier to administer and score, holistic assessments would require educational boards and institutions to invest significantly in creating these assessments and practice assignments. Of the 1.5M-plus schools in India, 75 percent are run by the government at a very low to no annual fee structure. Of the remaining 400,000 private schools, about 80 percent schools fall in the category of ‘Budget Private Schools’ charging Rs 500-1,000 per month, leaving a mere 15,000 (less than one percent of total schools) that can support the necessary infrastructure required for conceptualising and conducting such assessments.

The NEP 2020 drafting committee has undertaken a comprehensive process that considers state/UT governments, global best practices, expert opinions, field experiences, and stakeholder feedback. In the more affluent echelons, privately-owned Edtech is already taking a large part of the education spend away from the formal education systems.

The vision is aspirational. The implementation roadmap and rigour will determine whether this truly fosters education-for-all and job creation.

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Bad loans worth Rs 5.7 lakh crore may not be eligible under the one-time restructuring scheme permitted by the Reserve Bank of India (RBI).

These repayments, classified as special mention accounts (SMAs), were already overdue by more than 30 days on March 1, the deadline set by the central bank, 

Of the total standard loans, which stood at Rs 94.9 lakh crore at the end of March, 6.03 percent are loans with repayments delayed by 31-90 days, the report added.

This one-time recast will apply to loans overdue for over 30 days (SMA-1 accounts), where the repayment is delayed by 31-60 days, and SMA-2, where the repayment is late by 61-90 days.

The RBI had on August 6 said banks can conduct a one-time restructuring of loans, a move intended to provide borrowers relief during the COVID-19 pandemic.

"It is good that there are specific entry norms to the recast scheme this time. However, we have already been setting aside provisions for stressed loans. Despite provisions, we cannot recast without classifying them as bad, leading to more provisions and capital erosion," the CEO of a state-run lender told Mint.

The RBI had in March instructed banks to set aside 10 percent provisions against SMA-2 loans under moratorium in two tranches.

"September quarter results are unlikely to see a jump in bad loans, except for SMA-2 loan accounts. However, the gradual rise in non-performing loans will begin from the December quarter," a banker told the paper.

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Gratuity Eligibility: The Central government is considering relaxing the minimum eligibility condition for gratuity payments to employees. It is planning to lower the threshold from five years of continuous employment to between one and three years amid growing demand to make the gratuity eligibility criteria shorter.

The Parliamentary Standing Committee on Labour, in a recently tabled report, had recommended that the existing period of five years of continuous service for gratuity payment to employees should be reduced to one year.

Under the Payment of Gratuity Act, 1972, an employee who has worked in a company for over five years is eligible for gratuity by his/her employer.

The Act states that all employees, who are involved in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments, in which 10 or more persons are employed, are required to be paid gratuity by their employers. 

Gratuity is paid mainly at a time of retirement, but in certain conditions it can be paid even before retirement.

There is no set percentage for the amount of gratuity that an employee is supposed to receive. The amount payable depends upon the last drawn salary and years of service of the employee. 

Gratuity is defined as a benefit plan and is one of the major after-job perks received from an employer. 

Here are three ways to calculate one's gratuity balance:

- An employee can visit the Income Tax Department's website (www.incometaxindia.gov.in website). Click on 'Tax Tools' option and search Gratuity from the available options. The given calculator will compute the amount of gratuity payable with respect to the input values such as assessment year, type of employer, gratuity received, exempted gratuity and taxable gratuity.

- A employee can check with his/her employer or with the human resource department in the organisation with regards to the gratuity balance or amount.    

- The formula for calculating gratuity is 15 x (last drawn salary) x (tenure of working)/26 (days). For instance, employee X's last drawn salary is Rs 50,000 per month and has worked with ABC Ltd for about 30 years. So, his gratuity will be calculated as: (15 x 50,000 x 30)/26= Rs 9,37,500. In this formula, the time period of more than six months is considered as one year.

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Insurance regulator IRDA has directed third-party administrators (TPA) not to take health claims payment decisions on behalf of insurance companies. This means that a TPA, which is essentially an intermediary between a health insurance policyholder and a general insurer, will merely be involved with the processing of claims.

Whenever a policyholder files a health insurance claim, a TPA has to be contacted. The TPA is an external entity that works with multiple general insurers to help process customer claims. However, the rise in health insurance claims, which has been accelerated by the Covid-19 pandemic, and complaints over payment delays, has pushed general insurance companies to set up internal teams to ensure payments are quicker.

HDFC ERGO General Insurance, Bajaj Allianz General Insurance, ICICI Lombard, Max Bupa and Liberty General Insurance are among insurers that have in-house claims processing teams.

The idea of having a TPA was to ensure that when there is a spike in the volume of claims, the processing can be managed by an external party that could guide the customer on the claims process. However, industry sources said that the rise in claims settlement timelines has led to greater reliance on the in-house team. The idea here is to slowly reduce the reliance on TPAs and build in-house teams to help settle health claims.

Moneycontrol looks at how an in-house claims processing team works and how different it is from a TPA:

Claims intimation to the TPA

A policyholder has to contact a TPA to submit a health insurance claim. The details of the TPA are mentioned in the policy documents given to the customer. In the case of hospitalisation or diagnosis of a health ailment, the TPA has to be informed first.

The TPA then passes on the claim information to the insurance company. This process could take time since this is an external company handling thousands of claims on behalf of multiple insurers.

In comparison, an in-house team is able to pass on the claim information immediately and expedite the claims settlement process.

Submission of documents

Once a claim is submitted to a TPA, the policyholder is required to submit a slew of documents, including the medical bills, hospital discharge certificate and bill, pharmacy receipts, X-Ray reports (if any) as well as doctor prescriptions.

Sometimes, if one or two documents are missing the external TPA has to first contact the insurance company to check whether the claim is payable without the said document. In comparison, an in-house team’s turnaround time is quicker and ensures that documents are submitted on time for claims settlement.

Approval of claim

There is a misconception among customers that the TPA can accept or reject a claim. However, the insurance regulator’s rules state that a TPA is only involved in processing a claim and is not allowed to make any approval-related judgement.

So, once a policyholder has submitted all the claims to an external TPA, this entity has to contact the claims department of the concerned insurer to verify if approval has been granted. This could take about 7-10 days depending on the type of claim and claim size. In comparison, an in-house team would be able to make an approval decision within a week.

Settlement of claims

Whatever be the size of the health insurance claim, only the insurance company can decide what part of the claim is payable and what isn’t. For instance, consumables such as gloves, PPE kits, masks, sanitisers and cotton, which are provided for one-time use, are not typically covered by health insurance policies.

Similarly, any personal expenses incurred in the hospital, including telephone/internet charges or special food and supplements, are also not payable under standard health insurance products. This means that even if these items are filed under claims, the amount will be excluded from payment.

An in-house processing team is able to clearly explain which expenses under health insurance are payable and which ones are not. This is because they are internal company experts. Sometimes an expense covered under a policy’s terms may be inadvertently excluded. In such instances, an in-house team would be able to resolve the discrepancy quickly.

In comparison, a TPA has to first check with the insurance company as to why a particular claim component has been excluded from the final settlement. Customer complaints with respect to exclusions in the settlement amount also take time to be resolved.

At a time when there have been 2.2 million confirmed Covid-19 cases in India, with over 6,00,000 active cases currently, settling health insurance claims through an in-house claims-processing team could prove beneficial for customers.

But it may not be feasible for the industry to take out TPAs immediately. Industry sources are of the view that a phased exit of the model, wherein internal teams will be strengthened to handle claim volumes, is the way forward.

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Saptarshi Mukherjee had planned to attend a computer science programme at a California-based educational institute in 2019. The course fee was approximately Rs 40 lakh a year but Mukherjee presumed it wouldn’t be tough to secure an education loan for a programme in the US. He was mistaken. Three banks — two public sector banks and one private bank — rejected his application as his family lived in rented accommodation.

Ashna Sharif, now pursuing an architecture postgraduate course in London, said that two banks — one public sector and one private — had raised questions about her failing one year during her degree programme, which was due to her falling ill, and rejected her loan request.

With the financial position of Indians worsening amidst the pandemic, hopes of students getting a bank loan are turning bleak. So, many candidates are now pursuing other options to raise funds.

Saptarshi Mukherjee’s father finally decided to take a Rs 25 lakh personal loan from a non-banking financial company at a 13 percent interest rate. The rest came from their personal savings and hypothecation of gold jewellery. “We had kept aside a Rs 7 lakh corpus for medical emergencies, which has now been used for Saptarshi’s education,” said his father Badrinath Mukherjee.

Ashna Sharif’s parents took a gold loan since the banks were in no mood to lend. “It is almost as if they are looking for an excuse to reject the loan application,” she told Moneycontrol. The family took a Rs 15 lakh gold loan at an interest rate of almost 12 percent. The hope is that she will be able to find employment by 2021 and repay the amount.

On the back bench

Reserve Bank of India (RBI) data on sectoral deployment of bank credit shows that there has been an 8.43 percent decline in education loan disbursal (excluding priority sector lending) as of June 2020 to Rs 65,017 crore, compared to the highest level of Rs 71,000 crore, in November 2016. This is a year on year decline of Rs 2,583 crore or 3.8 percent.

RBI data for sectoral deployment of bank credit shows the exact quantum of loans given by these institutions to various sectors. Here, loans for educational purposes have seen a consistent decline and have now flattened to around Rs 65,000 crore.

For students this is tough because specialised higher education programmes in India and any course abroad cost upwards of Rs 10 lakh.

With banks out of the reckoning, students and their families are turning to other financial institutions, gold loans, dipping into the retirement corpus, part-time jobs and crowdfunding.

Pritam Saxena, from Gwalior, was able to raise Rs 2 lakh for his sister Anchal’s hotel management course within four weeks through on online platform. He said that the family did not have any collateral to place for a bank loan and hence they were forced to take this option.

Ramesh Srinivasan, from Chennai, who will be flying to Italy to pursue a course in Design in 2021, has started working to build a corpus of Rs 20 lakh, which he will require immediately. “Based on my interaction with the alumni, I have shortlisted two part-time jobs which will help me pay the mess fees. I have applied for a 40 percent scholarship and in case that doesn’t work out, I will start doing freelance jobs on website development, in which I have some experience,” he added.

Rise in delinquency

While there has been no decline in the number of students pursuing higher education and specialised programmes, banks are wary of the dwindling employment prospects of students and hence the rise in defaults.

“We have seen a rise in delinquencies by students and hence loan disbursal has been very selective. There is a consensus among bankers that loans should be restricted to the top institutes that have a good track record for employment,” said the general manager of a mid-sized public sector bank.

While industry data for FY20 are not available, banking sources said that education sector NPAs stayed close to 8.3 percent for the quarter ended March 2020. This is an almost 100-basis-point jump since March 2017.  

And yet, while banks are going cautious, overall education loan disbursals have increased. Data from CRIF High Mark showed that the education loan book, which includes banks, NBFCs and other financial institutions, stood at Rs 92,711 crore at the end of March 2020. The figure at the end of FY19 was Rs 90,345 crore.

There has also been an increase in the average ticket size of education loans, from Rs 3.94 lakh in FY19 to Rs 4.31 lakh in FY20.

However, there has also been a rise in delinquency or delays in payment of the loan interest. CRIF High Mark data showed that 7.19 percent was the delinquency beyond 360 days at the end of FY20. This meant that 7.19 percent of the education loan book had seen payment delays of one year and above.

This delinquency rate stood at 5.86 percent in the year-ago period, CRIF High Mark data showed.

“Since May-June 2019, we have seen a rise in payment delays by education loan customers. This is making it riskier to lend to this segment,” said the head of personal loans at a private bank.

A rise in delinquencies has also led to banks to seek more documentation and detailed academic records, which has played a dampener for students.

Other lenders step in

With banks not viewing education loans as an attractive segment, customers are gravitating towards other financial institutions.

Amit Gainda, Chief Executive Officer, Avanse Financial Services, told Moneycontrol that education is an essential spend in every household.

“Avanse Financial Services takes a student-centric approach rather than depending only on the co-borrowers’ financial background. As a part of this approach, we evaluate the student’s profile: past academic performance, entrance test scores, university/institute ranking and course selection,” said Gainda.

Gainda added that through this approach, the company is able to assess the employment potential of the student.

Student aspiring to study at an Indian Institute of Management or Indian Institute of Technology will be easier to secure an education loan from a bank. However, a traditional bank would be unwilling to provide a loan for unconventional courses like music, animation or photography.

That is where players such as Avanse Financial Services come into the picture. Gainda said the company lends to students pursuing both traditional and non-traditional programmes.

With loan moratoriums being granted amidst the pandemic and students defaulting due to no placements in 2020, it is unlikely banks will return to lending aggressively to the education sector. More and more students may therefore have to explore non-bank funding options.