India’s largest bank, State Bank of India (SBI), is offering credit cards to students who avail of education loans with them. The move is to gauge the students’ cradit history and keep bad loans down.
SBI hopes that the credit card useage will give it a glimpse into the user’s spending habits, thus giving it a clue about the borrower’s spending habits. This, in turn, will help it identify potential bad loans.
SBI Chairperson Arundhati Bhattacharya said, “We were having a lot of non-performing assets (NPAs) in education loans. So, now we have created a credit card along with the education loans.”
The credit card has a credit limit of Rs 5,000, guaranteed by the parent.
“Now what happens is the child starts using the credit card. He learns to use the credit card and repay the loan. And also, through the credit card we remain connected with him,” said Bhattacharya.
She pointed out that earlier once the bank gave the education loan it was no longer in the scene and the student forgot all about the bank. “But if there is a credit card, there is a monthly bill, so we remain connected with that person,” said the SBI chief.
And even when the student-borrower completes his education and takes up a job, the bank hopes that he/she will continue to use the card. “So, we can continue to track him. And in the meanwhile, he is building up a credit history which will enable use to give credit once he goes into a job,” said Bhattacharya.
As at June-end 2014, SBI had an education loan portfolio of Rs 14,945 crore, up 7.21 per cent year-on-year.