MUMBAI (CU)_Over the recent years there has been a hike in defaults in education loans in India, which was further aggravated by amid the pandemic. According to bankers, many students have dropped out over the past couple of years after colleges started online education, while some of them have been unable to secure jobs as many companies stopped hiring on account of uncertainties linked to COVID-19.
Against this backdrop, Edelweiss Asset Reconstruction Company managed to acquire the distressed education loan portfolio of the Indian Overseas Bank (IOB) at a 60 per cent discount at an auction last week, The Economic Times reported. Citing sources familiar with the matter, the business-focused daily newspaper said that a Swiss auction was held by the IOB on Thursday, following an offer of ₹2.38 billion (US$32.14 million) made by Edelweiss ARC for the education loan portfolio of ₹5.94 billion. Subsequently, the Mumbai-based financial services conglomerate was declared as a successful bidder, since no other bidder made a counteroffer.
According to ET, the portfolio comprised of 21,125 education loans which were auctioned under the 20:80 structure. Edelweiss will make an upfront payment of 20 per cent of the consideration amount, while security receipts will be issued for the remaining amount that can be redeemed as and when they recover the overdue.
Amid the COVID-19 pandemic, which has taken a toll on economies across the globe, loan defaults have increased, as consumers grapple with increasing unemployment. In the case of education loans, the higher share of non-performing loans (NPA) were from nursing students, at 14 per cent, followed by engineering students at 12 per cent, data compiled by all state-level bankers committees showed. Students studying for their MBAs made up 7 per cent of NPA, and for medical students it was 6.2 per cent.