The Scholar Loan portfolio of the SBI branch in the IIMA campus, which comprises of loans extended to students of the Indian Institute of Management Ahmedabad (IIMA), has touched Rs 340 crore. SBI recently increased the Scholar Loan limit from Rs 40 lakh to Rs 50 lakh.
SBI is the only bank with a branch within the IIMA campus, set up in 1975. In the early years, when the fees were more affordable and the cost of education at IIMA was subsidised by the government, the demand for student loans was low. But costs have been climbing steadily since economic liberalisation in 1991 and today, the fees for the two-year MBA program stand at Rs 32 lakh. There is also the cost of boarding and lodging, which add up to around Rs 3 lakh.
The cost of education at IIMA is now so high that most students enrolling in the two-year MBA course take a loan to finance their studies. Given that 440 students enrol in the IIMA MBA program every year, that makes for big business.
SBI offers IIMA students a special floating interest rate of 8.35%, which is slightly lower than the rate it offers to students of other institutes, including the new IIMs set up in other cities. Prem Kumar Singh, Chief Manager of the SBI IIMA branch, says: “Loans to IIMA students comprise 80% of our branch loan portfolio. Our interest rate is the most competitive in the market.”
An average of 250 of the 440 students enrolling in the IIM MBA program take a loan from the campus SBI branch every year. The branch currently has around 1800 live student loan accounts. The loan package also includes the option of financing for international student exchange programs, which can cost up to Rs 8 lakh depending on the location and duration. Popular destinations are France, Italy and the USA.
The Scholar Loan repayment is stretched over 180 months after graduation. But IIM graduates generally pay off their loans much before that and SBI charges no penalty for early repayment. What is the default rate? “It is negligible,” says Singh. “It happens only if the person gets into some difficulty due to unforeseen circumstances and that is quite rare.”
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