CHAPTER I

INTRODUCTION

1.1 Theoretical Background:

Banks are the most important financial institutions in the economy.

They are the principal source of credit (loanable funds) for millions of

families and for many units of government (school districts, cities,

countries etc.). Banks playa major role in the economic development

process. The country's economy depends upon the efficient functioning

of the banking system.

Banks are the financial service firms, producing and selling

professional management of the public's funds and performing many

other roles in the economy. Earlier, the services offered by banks

included currency exchange, savings deposits, discounting commercial

notes and making business loans, supporting government activities

with credit, safekeeping of valuables and certification of value, offering

trust services, offering checking accounts (demand deposits) etc. The

services banks have developed more recently are granting consumer

loans, financial advising, offering equipment leasing, making venture

capital loans, selling insurance services, selling retirement plans,

offering security brokerage and security underwriting services.

The Indian banking system had gone through a series of cries and

consequent bank failures and thus its growth was quite slow during the

first half of this century. But after Independence, the Indian banking

1

system has recorded rapid progress. This was due to planned

economic growth, increase in money supply, growth of banking habit,

control and guidance by the Reserve bank of India, and above all,

nationalization of 14 banks in July 1969.1

The bill introduced in the Legislative Assembly in 1933 resulted in

creation of the Central Bank or Reserve Bank of India, which

commenced its operations from 1st April 1935. The RBI performs

almost all traditional central banking functions and also undertakes

some developmental and promotional functions. In 1949, two major

developments took place. First, the enactment of the Banking

Regulation Act, which gave extensive regulatory powers to the Reserve

Bank of India over the commercial banks. Second, the nationalization

of Reserve Bank, mainly to have close integration between the policies

of the Reserve Bank and those of the Government. In terms of the

Reserve Bank (Transfer to Public Ownership) Act, 1948, the entire

share capital of the Bank was acquired by the Central Government.

From 1 st January 1949, the Reserve Bank began functioning as a

State-owned and State controlled Central Bank.2 These two major

developments immediately after the attainment of independence period

proved to be the turning points in India's Commercial Banking.

The Banking Regulation Act, 1949 defines Banking as "accepting, for

the purpose of lending or investment of deposits of money from the

2

public, repayable on demand or otherwise and withdrawable by

cheques, draft, and order or otherwise." 3

Commercial banks are organized on a joint stock company system,

primarily for the purpose of earning a profit. The Indian joint-stock

banks form an important constituent of the Indian Money market. A

joint-stock bank may be defined as any company which accepts for the

purpose of lending or investment of deposits of money from the public,

repayable on demand or otherwise and withdrawable by cheque, draft,

order or otherwise. The joint-stock banks are classified by the Reserve

Bank of India as scheduled banks and non-scheduled banks. Banks

with a paid-up capital and reserves of over Rs.5 Lakhs and which are

included in the second schedule of the Reserve Bank of India Act are

known as scheduled banks while banks which do not fall under this

category are known as non-scheduled banks. Indian joint-stock banks

are only those scheduled banks registered under the Indian

Companies Act.4

1.1.1 Nationalization of Banks:

In the two decades following the enactment of the Banking Regulation

Act, 1949, the Indian banking system developed in many respects. It

grew geographically, structurally and functionally. Judged on the basis

of deposit mobilization, commercial banks made a considerable

progress in the period.

3

Before the Banking Regulation Act, 1949 came into existence, Banking

system in India suffered for the following reasons:5

1. Indian Joint-stock banks during the early part of the century carried

out varied nature of the transactions, which could never be

characterized as banking transactions.

2. According to the original provisions, it was possible for a bank with

only one place of business to be started with as low a capital as

Rs.50,OOO without any specifications for branches.

3. There was no consistency in balancing paid-up capital and reserves

of commercial banks with the increase in deposits brought about by

the growing economic activity during the past years. To satisfy the

shareholders, banks used to declare large dividends, thus

undermining sound banking principles.

4. Ignorant public were shown large figures of authorized capital as

against very fractional amounts of paid-up capital and thus could be

easily misled by certain unscrupulous bankers. The promoters of

banking companies used to persuade persons to purchase a very

large number of shares than they could actually afford to and also

by calling only a small portion of the subscribed capital. For

instance, the Poona Bank which went into liquidation in 1924 had

an authorized capital of Rs.10 crores as against a subscribed

capital of Rs.50 Lakhs and a paid-up capital of Rs.3 Lakhs.

5. Interlooking directorates (same person appointed as director for

more than one bank) paved way of mismanagement.

4

6. A number of bank failures were also due to the negligence on the

part of the bankers to maintain the liquidity of their assets in their

greed to earn more profits.

The Indian joint-stock banks didn't do well from their inception till about

the middle of the twentieth century. There were different long periods

of slow growth and short periods of rapid growth of bank formations.

Banking crisis and failures led to liquidation for many banks. The main

reasons were insufficient paid-up capital and reserves and poor

liquidity of assets, combination of trading with banking, reckless and

injudicious lending, speculative investments, incompetent and

dishonest management, absence of a central bank to supervise, guide

and help other banks, and lack of suitable banking laws to regulate

banking. The periodic failures of banks hampered greatly the growth of

commercial banking in the country by hurting the public confidence in

it.

When India became independent in 1947, it inherited an extremely

weak banking structure, with 640 banks out of which only 96 were

scheduled banks and the rest were small non-scheduled banks. The

banking facilities were heavily concentrated in metropolitan centers,

cities and port towns, with a very high proportion of total advances

growing to trade. However, the Banking Regulation Act, 1949 has been

instrumental to foster a sound and healthy banking system in India by

taking measures in past to reform the banking system.

5

The efforts of post-Independence government to promote rapid

economic development within a mixed economic framework greatly

widened the nature and scope of the RBI's responsibilities. The

manner in which it interpreted and fulfilled these functions, and the

constraints it faced, have consequently varied greatly in the seven

decades of the RBI's existence.

In the first decades after Independence, the structure of central

banking in India rested on four pillars: monetary policy, developing an

orderly ad well-regulated banking system, establishing and financing

the infrastructure for agricultural credit, and institutionalizing long term

lending to industry. The two principle functions viz. institutionalization

of savings and institutionalization of credit, were inseparable from each

other for the RBI as these were also its principle functions, namely

monetary policy. In November 1951 the RBI made light of its

constraints to unroll a new monetary policy marked by the

abandonment of a cheap money policy. The Indian banking system

characterized by a large number of undercapitalized and poorly

managed banking institutions resulted in panics and bank collapses in

1940's. Consolidating banks and instituting sound licensing,

management, and supervisory norms and procedures thus became

important priorities. Following the RBI's efforts, the clumsy banking

arrangement comprising some 566 bank in 1951 was reduced by 1967

to a more homogenous and manageable system made up of ninety-

6

one institutions. At the same time the reach of the banking system

widened, offices of commercial banks rising from about 4000 in 1951 to

over 7000 in 1967. This growth fuelled the nation's expectations by the

late 1960's, which saw a debate over the relative advantages of social

control over banks and outright nationalization. The debate was settled

in the realm of politics when Prime Minister Indira Gandhi decided to

nationalize fourteen of India's largest private sector banks in 1969.6

Commercial banking system did not play its proper role in the planned

development of the nation and thus 'Nationalization' was initiated. The

commercial banking, then, was controlled by a few industrialists and

business magnates who had used public funds to build up private

industrial empires. The Government policy was to encourage small,

tiny and cottage and village industries but the fact was that the small

industrial and business units were continuously and consistently

ignored and starved of funds. Banks did not consider agricultural credit

seriously. Public funds were used to support anti-social and illegal

activities against the interest of the general public. It was for these

reasons that the government took over 14 top commercial banks in

July 1969. Two main tasks were set before the Public Sector Banks

namely:-

a. Mobilization of deposits through a massive programme of branch

expansion, especially in unbanked rural and semi-urban areas and

b. Diversification of bank credit to ensure flow of financial assistance

to the neglected sectors and sections of the economy in an

increasing measure.

7

The nationalization of 14 major banks with deposits of Rs.50 crores or

more in July in 1969 was a historic and momentous event in the history

of India. Before the steps of nationalization of Indian banks, only State

Bank of India (SBI) was nationalized. The origin of the State Bank of

India goes back to the first decade of the nineteenth century with the

establishment of the Bank of Calcutta in Calcutta on 2nd June 1806.

Three years later, the bank received its charter and was re-designed as

the Bank of Bengal (2 January 1809). A unique institution, it was the

first joint-stock bank of British India sponsored by the Government of

Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras

(1 July 1843) followed the Bank of Bengal. These three banks

remained at the apex of modern banking in India till their amalgamation

as the Imperial Bank of India on 27 January 1921.

In 1951, when the First Five Year Plan was launched, the development

of rural India was given the highest priority. The commercial banks of

the country including the Imperial Bank of India had till then confined

their operations to the urban sector and were not equipped to respond

to the emergent needs of economic regeneration of the rural areas. In

order, therefore, to serve the economy in general and the rural sector

in particular, the All India Rural Credit Survey Committee

recommended the creation of a state-partnered and state-sponsored

bank by taking over the Imperial Bank of India, and integrating with it,

the former state-owned or state-associate banks. An act was

accordingly passed in Parliament in May 1955 and the State Bank of

India was constituted on 1 July 1955. More than a quarter of the

8

resources of the Indian banking system thus passed under the direct

control of the State. Later, the State Bank of India (Subsidiary Banks)

Act was passed in 1959, enabling the State Bank of India to take over

eight former State-associated banks as its subsidiaries (later named

Associates).7 The Government of India promulgated an Ordinance

called the Banking Companies (Acquisition and Transfer of

Undertakings) Ordinance, 1969 on 19 July 1969, in terms of which the

Central Government acquired the undertakings of the flowing 14 major

Indian banks which has deposits of not less than Rs.50 crores each on

the last Friday of June 1969. 8

In her broadcast address of 19 July 1969 on bank nationalization,

Prime Minister Mrs. Indira Gandhi stated that nationalization was

meant for an early realization of the objectives of social control which

were spelt out as:

1. Removal of control by a few.

2. Provision of adequate credit for agriculture and small industry and

export.

3. Giving a professional bent to management.

4. Encouragement of a new class of entrepreneurs.

5. Provision of adequate training as well as terms of service for bank

staff.

1.1.2 Second Phase of Nationalization:

The emphasis on role of the nationalized banks as a catalytic agent for

growth of economy could be clearly noted in the statement of

9

objectives and reasons accompanying the Banking Companies

Acquisition and Transfer of Undertakings Act: "The banking system

touches the lives of millions and has to be inspired by larger social

purpose and has to subserve national priorities and objectives, such as

rapid growth in agriculture, small industries and exports, raising of

employment levels, encouragement of new entrepreneurs and the

development of the backward areas. For this purpose it is necessary

for government to take direct responsibility for the extension and

diversification of banking services and for the working of substantial

part of the banking system." As a further step in the Government's

action when it wanted large banks to fall in line with its goal of obtaining

national objectives, six more banks have been nationalized in April

1980.9

1.1.3 Lending to Priority Sector:

A major objective of banks' nationalization in July 1969 was to extend

the reach of bank credit both geographically to unbanked regions and

functionally to agriculture and other neglected sectors, designated as

"priority sectors". At a meeting of the National Credit Council held in

July 1968, it was emphasized that commercial banks should increase

their involvement in the financing of priority sectors, viz., agriculture

and small scale industries. Later, a few more categories were also

added to this list, namely road and water transport operators,

professional and self-employed persons, retail trade and small

business and education.

10

The description of the priority sectors was later formalized in 1972 on

the basis of the report submitted by the Informal Study Group on

Statistics relating to advances to the Priority Sectors constituted by the

Reserve Bank in May 1971. On the basis of this report, the Reserve

Bank prescribed a modified return for reporting priority sector advances

and certain guidelines were issued in this connection indicating the

scope of the items to be included under the various categories of

priority sector. Although initially there was no specific target fixed in

respect of priority sector lending, in November 1974 the banks were

advised to raise the share of these sectors in their aggregate advances

to the level of 33 1/3 per cent by March 1979. At a meeting of the

Union Finance Minister with the Chief Executive Officers of public

sector banks held in March 1980, it was agreed that banks should aim

at raising the proportion of their advances to priority sectors to 40 per

cent by March 1985. Subsequently, on the basis of the

recommendations of the Working Group on the Modalities of

Implementation of Priority Sector Lending and the Twenty Point

Economic Programme by Banks, all commercial banks were advised to

achieve the target of priority sector lending at 40 per cent of aggregate

bank advances by 1985. Sub-targets were also specified for lending to

agriculture and the weaker sections within the priority sector. Since

then, there have been several changes in the scope of priority sector

lending and the targets and sub-targets applicable to various bank

groups.

11

On the basis of the recommendations made in September 2005 by the

Internal Working Group, set up in Reserve Bank to examine, review

and recommend changes, if any, in the existing policy on priority sector

lending including the segments constituting the priority sector, targets

and sub-targets, etc. and the comments/suggestions received thereon

from banks, financial institutions, public and the Indian Banks'

Association (IBA), it has been decided to include only those sectors as

part of the priority sector, which impact large segments of population &

the weaker sections, and which are employment-intensive.

Accordingly, a target of 40 percent of net bank credit is set towards

total priority sector advances for domestic banks (public sector and

private sector banks) operating in India. The sub-targets thereof

includes agriculture advances carrying a target of 18 percent of the net

bank credit, small scale industries without any target fixed, micro

enterprises within small scale sector carrying a target of 60 percent of

small enterprise advances, weaker sections carrying a target of 10

percent of net bank credit. However, no fixed target is prescribed for

education loans. The priority sector lending for all scheduled

commercial banks include educational loans granted to individuals for

educational purposes up to Rs. 10 Lakhs for studies in India and Rs.

20 Lakhs for studies abroad. Loans granted to institutions are not

eligible to be classified as priority sector advances.

1.1.4 Nationalization and Priority Sectors

Nationalization of banks gave an added impetus to bank's lending to

priority sectors such as agriculture and small-scale industries and there

12

has been a greater involvement of banks in these and other socially

desirable sectors. There has been a sharp increase in credit to, road

transport operators and banks stepped up their assistance to exports.

There has been a shift of the nationalized banks from the credit

worthiness of the borrower to the creditworthiness of the project to be

financed. This is evidenced by the larger amount lent by these banks to

the, other sectors like the retail trade and self-employed persons and

for the purposes of higher education. Thus, while the credit needs of

organized sectors of industry and trade, which the banks hitherto

almost solely met continue to be provided for, institutional credit

facilities at reasonable rates of interest are extended to a large number

of borrowers of small means, such as small farmers, small-scale

manufacturers, retail traders, road and water transport operators, small

businessmen, professionals, self-employed persons, etc. As a matter

of fact, banks have been advised to reach a certain minimum level of

lending to these sectors and sub-targets have also been prescribed for

certain activities within the priority sectors and to target groups of

beneficiaries there under.1o The details relating to advances to priority

sector by Public Sector Banks are presented in the following table:-

13

Table 1.1

Advances to Priority Sector by Public sector Banks

No. of Accounts Amount (in Lakhs) (Rs. in Crores)

Sector (As on the last reporting Friday)

June I March June March 1969 2008 1969 2008

I. Agriculture 1.7 276 162 2,49,397 II. Small-scale 0.5 - 257 -

industries II. (A) Small - 40 - 1,51,137

Enterprise* III. Other priority sector 0.4 - 22 -

advances IV. Retail Trade* - 32 - 40,519 V. Micro - Credit* - 7 - 2,707 VI. Education* - 12 - 19,748 VII. Housing* - 34 - 1,46,868 VIII. Total priority sector 2.6 401 441 6,10,450

advances IX. Net Bank Credit - - 3,016 13,64,268

Source: http://www.rbl.org.ln/scnpts/Publlcatlons.

Table 1.1 shows that amongst the total priority sector advances, the

largest advances have always been towards agriculture sector.

Accordingly, the number of accounts for agriculture sector as on June

1969 was only 1.7 Lakhs which increased to 276 Lakhs accounts as on

March 2008. Accordingly, the amount outstanding thereof as on June

1969 was Rs. 162 crores which increased to Rs. 2,49,397 crores as

on March 2008 respectively. Accordingly, as on March 2008, number of

accounts for education loans was 12 Lakhs and amount outstanding

was Rs. 19,748 crores respectively. The total priority sector advances

has shown a tremendous increase from 14.6 percent as on June 1969

to 44.7 percent as on March 2008.

14

1.1.5 Deposit Mobilisation:

At the time of first nationalization, the total deposits of all scheduled

commercial banks were about Rs.5,000 crores. The Indian banking

system prior to the Banking Regulation Act was not very sound. There

were many small banks with unscrupulous management. However,

after the Banking Regulation Act, following the nationalization, there

was a phenomenal rise in bank deposits of scheduled commercial

banks. Aggregate bank deposits on last Friday of March 1991 were

Rs. 1,92,541 crores as against Rs. 4,665 crores in July 1969.11

1.1.6 Bank Credit:

Post nationalization of 14 banks, substantial amounts of loans have

been given for agricultural operations. Total bank credit stood at

Rs.1,16,301 crores on last Friday of March 1991. Since nationalization

of 14 major banks, there has been spectacular rise in bank credit. In

July 1969 it was only Rs.3,399 crores. Over a period of 22 years bank

credit had steadily increased and was more than 34 times in March

1991 of what it was at the time of nationalization of banks.12

The State and population group-wise distribution of number of

Reporting Offices, Aggregate Deposits and Gross Bank Credit­

Nationalized Banks as on September 2007 is presented in the following

table:-

15

Table 1.2

State and Population Group-Wise Distribution of Number of Reporting Offices, Aggregate Deposits and Gross Bank Credit­Nationalized Banks-September 2007

(Amount Rs. in Crores)

REGIONI STATE! OFFICES DEPOSITS CREDIT UNION TERRITORY

North 6,101 330,773 222,387

North-East 816 18,904 6,939

East 6,167 169,295 84,087

Central 6,789 179,210 81,663

West 6,834 395,655 324,452

South 9,371 274,017 240,501

All India 36,078 1367,855 960,030

Source: RBI Quarterly Statistics Report, September 2007

Table 1.2 points out clearly that the western region is leading in terms

of deposit collection and credit offered, in comparison to other regions.

As per the 'Quarterly Statistics on Deposits and Credit of Scheduled

Commercial Banks - September 2007' released by the RBI, stated that

nationalized banks, as a group, accounted for 47.9 per cent of the

aggregate deposits, while State Bank of India and its Associates

accounted for 22.6 per cent. As regards gross bank credit, the share of

nationalized banks was the highest at 47.0 per cent, followed by State

Bank of India and its Associates at 22.9 per cent. The aggregate bank

deposits were Rs. 4,665 crores in July 1969 which rose to

Rs.1,36,7855 crores by September 2007. The total bank credit in July

1969 was only Rs.3,399 crores which spectacularly rose to

Rs.9,60,030 crores respectively by the end of September 2007.13

16

1.1.7 Performance of Priority Sector Advances:

Credit growth to the priority sector by all scheduled commercial banks

decelerated to 24.0 per cent in 2006-07 from 36.1 per cent in the

previous year. The details of credit to priority sector are presented in

the following table:-

Category

Priority Sector (a+b+c)

a) Agriculture

b) Small Scale Industries

c) Other Priority Sectors (including Education Loans)

Table 1.3 Credit to Priority Sector (Amount Rs. in Crores)

Outstanding as on March 19, March 18, March 31,

2004 2005 2006 2,63,834 3,74,953 5,10,175

(24.7) (42.1 ) (36.1 )

90,541 1,24,269 1,73,875 (23.2) (37.3) (39.9)

65,855 74,189 91,020 (9.0) ( 12.7) (22.7)

1,07,438 1,76,495 2,45,280 (38.3) (64.3) (39.0)

March 30, 2007

6,32,647 (24.0)

2,30,180 (32.4)

1,16908 (28.4)

2,85,559 (16.4)

Note: Figures in parenthesis represent percentages to net bank credit for the respective groups.

Source: Reserve Bank of India Report on Trend and Progress of Banking In

India 2006-07.

Table 1.3 shows that credit to 'other priority sector', which witnessed a

sharp growth in recent years, also decelerated sharply during 2006-

07.14 However, while credit growth to agriculture decelerated, credit

growth to small scale industries accelerated.

1.1.8 Public Sector Banks

In November 1974, public sector banks were advised that their priority

sector lending should reach a level of not less than one-third of the

17

outstanding credit by March 1979. In November 1978, the private

sector banks were also advised to lend a minimum of 33 1/3 per cent of

their total advances to the priority sectors by the end of March 1980.

Subsequently, the target was enhanced to 40 per cent of aggregate

advances. The performance of priority sector lending by Public sector

banks is presented in the following table:-

Table 1.4

Performance of Priority Sector Lending by Public Sector Banks (As on the last reporting Friday of March)

(Amount Rs. in Crores)

Public Sector Banks Item 2006 2007

(Provisional) Priority Sector Advances of 4,09,748 5,21,180 which: (40.3) (39.6)

Agriculture 1,55,220 2,05,091 (15.3) (15.6)

Small Scale Industries 82,434 1,04,703 (8.1 ) (8.0)

Other Priority Sectors 1,63,756 2,01,023 (including education loans) (16.1) (15.3)

Source: Reserve Bank of India Report on Trend and Progress of Banking in India 2006-07.

Table 1.4 reveals the outstanding advances granted by public sector

banks to the priority sector were at Rs.5,21, 180 crores as on reporting

Friday of March 2007. The outstanding priority sector advances of

public sector banks constituted 39.6 per cent of net bank credit -

against the target of 40 per cent. Advances to agriculture constituted

15.6 per cent of Net Bank Credit ( NBC) as on the last reporting Friday

of March 2007.15

18

The PSBs, as a group, did not achieve the priority sector lending

target of 40 per cent till March 1999. The target was first achieved in

2000 and the PSBs, as a group, continued to meet the target till 2005-

06. Priority sector lending by the PSBs, as a group, however,

marginally fell short of the target of 40 per cent by 0.4 per cent as on

the last reporting Friday of March 2007.

1.1.9 Retail Credit

The performance of banks in priority sector lending has improved in

recent years. However the retail credit in 2005-06 has fallen

substantially when compared with 2006-07. The retail portfolio of

Banks is presented in the following table:-

Table 1.5

Retail Portfolio of Banks (Amount Rs. in Crores)

s. Item Outstanding as at Percentage No. End March Variation

2006 2007 2005- 2006-06 07

1 Housing Loans 1,79,060 2,24,481 33.4 25.4

2 Consumer 4,469 7,296 17.3 63.3 Durables 3 Credit Card 12,434 18,317 47.9 47.3 Receivables 4 Auto Loans 61,369 82,562 75.1 34.5 5 Other Personal

1,18,351 1,55,204 39.1 31.1 Loans Total Retail Loans 3,75,683 4,87,860

40.9 29.9 (1 +2+3+4+5) (25.5) (25.8) Total Loans and 14,73,723 18,93,775 31.0 28.5 Advances

Note: Figures within brackets represent percentage share in total loans and advances.

Source: Reserve Bank of India Report on Trend and Progress of Banking in India 2006-07.

19

Table 1.5 clearly indicates that the growth of retail portfolio of banks

decreased to 29.9 per cent during 2006-07 from 40.9 per cent in 2005-

06. The same still grew faster than the overall credit portfolio of the

banking sector (28.5 per cent). As a result, their share in total loans

and advances increased somewhat to 25.8 per cent at end-March 2007

from 25.5 per cent at end-March 2006. Within the retail portfolio, credit

for consumer durables experienced the highest growth during 2006-07

in sharp contrast to the last year when it experienced the lowest

growth. Growth of credit card receivables, auto loans and other

personal loans (comprising loans mainly to professionals and for

educational purposes) slowed down during the year. Housing loans,

the largest component with a share of 46.0 per cent of retail portfolio of

banks, also decelerated.16

1.2 Role of Higher Education

"The term "Higher education" covers all studies and training activities at

the Tertiary level. It also encompasses the Universities offering

classical disciplines (e.g. the Arts and Science Faculties) and

specialized branches (such as the institutes of Agriculture,

Engineering, Science and Technology). Furthermore, the concept

incorporates traditional Post-Secondary Institutions such as the

Polytechnics and Training colleges. Consequently, Higher education

also embodies all forms of vocational training institutions enrolling

trainees who have pursued various kinds of secondary studies: Military,

policy and Nursing Training Schools, specialized Institutes of

20

Agriculture, forestry, Veterinary Schools, specialized catering, tourism,

Secretarial Institutions, etc.,,17

The term higher education is largely university education, delivered

through universities and colleges and covering bachelor's

(undergraduate), master's (post graduate), and doctoral or pre-doctoral

(M.Phil.) degrees. But it also includes technical education, where

undergraduate and postgraduate diplomas (rather than degrees) are

offered.18

Education is an instrument for developing not only an economically

prosperous society, but one which can live comfortably in the context of

pluralism and democracy. Education not only builds high moral

standards and ethical values in public life, in the professions, in

business and in the development of rural economy but it also prepares

students to enter the world of work as productive and responsible

citizens and as parents rearing future generations.

As per UGC, higher education determines India's economic and

technological progress. The World Bank report of 1994 highlights the

worth of higher education wherein it is considerable that institutes of

higher learning benefits state and society in several ways: they equip

individuals with advanced knowledge and skills to discharge

responsibility in government, business and professions; produce new

knowledge through research and at least serve as conduit for the

transfer, adaptation and dissemination of knowledge generated

21

elsewhere in the world. The taskforce constituted by World Bank and

UNESCO during 2000 has also observed that higher education helps

increase wages and productivity that directly enrich individuals and

society. 19

The role of higher education in national development is we 11-

established. The road to development of a nation is through the

education system. Education is central to the Human Resources

Development and empowerment in any country. The modern world is

using education increasingly as an instrument for all-round

development. Creation of social opportunities for all sections of society

is a reflection of the progress of that society and education is the

principal instrument for developing human capabilities. Globalization

and the emergence of a new society more dependent on knowledge

and information technology have further underlined the importance of

education in pursuing developmental goals.

1.2.1 Higher Education in India:

India's ancient seats of learning at Nalanda and Takshashila were

essentially centres of religion and philosophy. They had their own

unique traditions and values. The modern Indian universities, however,

have their roots in European institutions and models. The Britishers set

up network of schools to impart western education in English medium.

First such college to impart western education was founded in 1818 at

Serampore near Calcutta.2o The first of these modern universities of

Europe, at Bologna, Paris and Oxford were founded as centers for

22

traveling scholars and acquired and egalitarian character. The

emergence of a world wide economic order has immense

consequences for higher education more so under the changes that

have taken place in the recent past with regard to globalization,

industrialization and information technology advancement. With rapid

developments in communication technology, universities need to

develop their abilities to meet society's demands.

1.2.2 Expansion of the University system:

A university receives recognition from the University Grants

Commission (UGC), established as early as 1953, although, the Act

was passed in the Parliament in 1956.21 The UGC is the apex body for

university education in India and carries out following specific functions:

1. Assessment of the needs of universities and disbursements of

funds.

2. Recommending measures to be taken by a university for

improvement.

3. Advising the Central and State Governments.

4. Collecting information on university education for universities and

also requiring universities to furnish information.

5. Establishing institutions for providing common facilities, services

and programmes for a group of universities.

The number of Universities has grown from 19 in 1947 to 378 in 2007

and colleges from 27 to 18,064.22 The total enrolment increased from a

23

meager of 0.1 million in 1947 to 10.48 million in 2005. The bulk of

higher education system lies in its 131 affiliating universities. It

contributes around 89 per cent of the total enrolment. 23 The

underestimate of the current enrolment ratio has in fact led the

Knowledge Commission to set a target of a 15 per cent enrolment ratio

by 2015 as per Central Advisory Board of Education (CABE)

Committee recommendations. To achieve this, India needs 40,000

institutions (1500 universities) to meet the growing higher education

needs of an estimated population of 113 million in the age-group of 18-

24 years, and we have enrolled only about 10 per cent of it. The growth

of Higher education institutions and enrolment in India is presented in

the following table:-

Table: 1.6

Growth of Higher Education Institutions and Enrolment in India

Year Universities* Colleges Total Enrollment (Lakhs)

1947-48 20 496 516 2

1950-51 28 578 606 2

1960-61 45 1,819 1864 6

1970-71 93 3,277 3370 20

1980-81 123 4,738 4861 28

1990-91 184 5,748 5932 44

2000-01 266 11,146 11,412 88

2005-06 348 17,625 17973 105

*includes central, state, private and deemed-to-be universities as also institutions of national importance established both by the central and the state legislatures.

Source: UniversIty Grants CommIssIon as cIted In K Sudha Rao and SIngh Mithilesh. (2007). 'University Education in India: Challenges Ahead', University News, 45(02) January 8-14, 2007, p4.

24

Table 1.6 reveals that the number of universities and colleges

increased in 1947 from 20 and 496 respectively to 348 universities and

17,265 colleges in 2006. Accordingly, the total number of higher

education institutions also grew from 516 in 1947 to 17973 in 2006.

The total enrollment also shows tremendous increase from 2 Lakhs in

1947 to 10.5 million in 2006.

The evolution of higher education in India can be traced back to 1857,

when the first Indian Universities were set up. Earlier, Indian colleges

were affiliated to British Universities. Between 1857 and 1947,

eighteen universities were set up, the ones in Bombay, Calcutta, and

Madras providing the models, with an emphasis on liberal arts. There

has been an appreciable growth in the number of Universities (19 in

1947 to 378 in 2007) and colleges (496 in 1947 to18064 in 2007) in

India since independence.

At the time of independence, there were 20 universities, 496 colleges

and around 100,000 students. The number of students (per 100,000

population) was eighty in 1951. By the end of the Ninth Plan (March

2002), there were 133 central and state universities, 27 deemed

universities, 12342 colleges, 1500 women's colleges, and 7,500,000

students, that is 717 students per 100,000 population. By the time of

the mid-term appraisal of the Tenth Plan in 2004-05, there were 229

central and state universities, 95 deemed universities, 16,000 colleges,

25

1650 women's colleges, and 9,228,000 students, which is 854 students

per 100,000 population.24

1.2.3 Structure of Higher Education in India:

According to the census 2001, the overall literacy rate in the country

has gone up by 10% during the last 10 years. The twenty-first century

promises to be a 'Knowledge era' in which a highly competitive

'knowledge society' has made unprecedented demands on universities

and other institutions in the area of higher education. A tremendous

increase in the information available in libraries and data-bases has

brought the change in the now accepted student-centered learning.

(i) University Education: University Grants Commission (UGC) set up

under UGC Act 1956 is the apex body for university education in India

and carries the major responsibility of promotion and coordination,

determination, and maintenance of standards and release of grants to

universities and research organizations. There is also a concept of

Deemed University. This status is given by UGC to colleges of

exceptional excellence.

(ii) Vocational Education: One of the streams of higher education is

vocational education. For this a network of public and private

polytechnics and vocational institutions exists, controlled and

supervised by the Councils specializing in each discipline. There are

nearly 10 million students in 6500 such institutions.

26

(iii) Open University System: India has also developed an Open

University system to encourage distance learning. Indira Gandhi

National Open University (IGNOU) was the pioneer and now there are

seven open universities in India offering over 500 courses. Over the

time, there has been emergence of new types of providers of higher

education in India. The emergence of 'Distance education' in the recent

years as a viable alternative to the formal conventional university

education is also significant in the growth of higher education by

providing easy access to the students through computer-aided

technology . It is also instrumental in furthering the concept of lifelong

learning. Not only private institutions proliferated, distance education

programmes gained wider acceptance, public universities and colleges

started self-financing programmes, foreign institutions started offering

programmes either by themselves or in partnership with Indian

institutions and non-non-university sector also grew rapidly.

(iv) Internet in Education: The Internet has also played a major role

in streamlining administrative procedures and processes of universities

worldwide. Any modern university, management school or institute

today has its own website on which courses offered are listed. On-line

Universities, which do not require physical infrastructure, have

facilitated greater accessibility to education than ever before because

of internet.

27

The types of Higher Education Institutions and growth trends in Higher

Education Institutions are presented in the following table:-

Table 1.7

Types of Higher Education Institutions and Growth Trends in Higher Education Institutions

Type Ownership Financed No. of Enrolment by Institutions

Government Public Public 240 1000000 Universities Private Private Private 7 10000 Universities

Deemed Private or Public 37 40000 Universities- Public Govt. Universities Deemed to Private Private S6 60000 be Universities-Pvt. Unaided Govt. College Public Public 1S00 1000000

Pvt. Aided Private Public SOOO SOOOOOO College Pvt. Unaided Private Private 4000 3000000 Colleqe Foreign Private Private 1S0 8000 Universities

Growth Trends

Not Growing Emerging

on the scene

Growing Slowly

Growing Rapidly

Not growing

Not growing Growing Rapidly

Emerging on the scene

Source: Pawan Agarwal, Higher EducatIon In IndIa, The Need for a Change, ICRIER, Working Paper No. 179, May 2006 cited in K Sudha Rao and Singh Mithilesh. (2007). 'University Education in India: Challenges Ahead', University News, 4S(02) January 8-14, 2007, p6.

Table 1.7 shows that government owned and financed colleges which

stand at 240 institutions, are not growing as much as rapidly growing

private unaided colleges which are owned and financed by private

institutions/bodies stand at 4000 institutions. Also it can be noted that

foreign universities which are owned and financed by private bodies

are also fast emerging.

28

1.2.4 Globalization and Higher Education in India:

In 1994, over 140 countries approved the GATS (Global Agreement in

Trade & Tariffs), the predecessor to the WTO, which was created later

in 1995 to expand trade liberalization internationally. In 1996,

developed and developing countries including India signed the General

Agreement on Trade in Services (GATS) and covered the services of

International Trade. The purpose of this agreement was liberalization

of trade in service and secure non-discriminatory free and open market

trade in goods and services. Amongst the 12 sectors defined by the

WTO as service, one of the services is 'education services'.

According to the results of a special surve/5 higher education is

already a global business. The days when higher education was a

matter of national policy and government regulation are rapidly fading.

Higher Education provisioning is now globalize and in many ways, a

commercialized affair and the way that the State had in the goings on

is vastly diminished. While private profit seeking companies have

entered the education business, even government-controlled

universities are seeking independence from governmental authority.

However, many countries including India continue to control the fee

structure of their universities causing financial stress to foreign

students, who are generally made to pay much higher fees than local

students.

29

1.2.5 Country comparisons- Enrolment:

The country wise comparison of enrolment of students in higher

education in selected countries is presented in the following table:-

Table 1.8

Ratio of Number of Universities and Population

Country Population No. of universities (Million) USA 295 2364

UK 59 104

JAPAN 127 684

GERMANY 82 330

INDIA 1105 380

Source: CIA World Fact book (website: www.nationmaster.com) cited in Shaikh Saleem and Gawali Vidya, (2007). 'Public Expenditure on Higher Education in India', University News, 45 (49), December 03-09,2007, p12.

Table 1.8 clearly outlines that India is the third largest system of higher

education, U.S. being the largest higher education providers. However,

the enrolment ratio in higher education in India is just 7.2 per cent.

This rate is very low in comparison to other developed nations. The

enrolment ratio in higher education is 80 per cent in USA, 50 per cent

in France, 30 per cent in UK, 13 per cent in China, even in developing

and less developed nations the enrolment ratio is higher than in India.

One of the reasons is may be the present number of universities and

colleges, resources and facilities are insufficient to cope up with the

growing demands of higher education.

30

1.3 Need for loans to finance higher education

Higher education occupies a low priority in public expenditures. Its

share of GNP was nearly 1 percent during the 1970s, just 0.35% in the

mid-1990s before increasing modestly to 0.6 by the end of the decade.

Although total expenditure on higher education has risen since

independence from 483 crores to 2418.3 crores between 1980 and

1995, spending per pupil in real terms declined for nearly two decades,

before recovering modestly. The degree to which states have allowed

private higher education institutions varies considerably. The number is

greatest in the Southern states and Maharashtra, and least in states

like Bihar and West Bengal. According to NSS data, the government's

share in overall education expenditure has been declining steadily,

from 80 percent in 1983 to 67 percent in 1999. For states like Kerala,

the decline is steep, from 75 to 48 percent, while for Madhya Pradesh it

is from 84 percent to 68 percent. Indeed, while private expenditure on

education has risen 10.8 times in the last 16 years, that for the poor

rose even faster, by 12.4 times. However, the most noticeable trend

has been the transformation in the provision of professional education,

especially engineering, medicine and business schools. Indians are

spending between Rs. 3000-5000 crores (roughly $700 million to $1

billion) on higher education abroad, a staggering amount for a poor

country whose own educational institutions are starved of resources.

1.3.1 Public expenditure

Total expenditure on higher education has increased remarkably during

the post-independence period. At the inception of Planning in the

31

country India spend barely Rs.17 crores on higher education. However,

more than offset by increase in prices, and increase in population and

student numbers in higher education, the government expenditure

increased considerably. The trends suggest that expenditure on higher

education had a good start during the 1950s, the growth was erratic

during the 1980s. With the economic reforms in 1990s, the allocations

of budgetary resources to higher education have indeed been severely

affected. The trends seem to continue in the present decade as well.

1.3.2 Trends in Financing Higher Education in India:

The UGC is empowered to give grants to a university, established after

1972, only if it meets the criteria for receiving such grants. The

government share of higher education is decreasing mainly due to

mounting debts. India has a debt of US$136.5 billion up to September

2006 according to Finance Ministry of India.26 Higher education

expenditure as a share of GNP declined from nearly 1 per cent during

the 1970s to just 0.35 per cent in the mid-1990s before increasing

modestly to 0.6 per cent by the end of the decade. Government

expenditure on higher education as a percentage of total education

expenditure declined from an average of 15 per cent during the 1980s

to about 10 per cent during the 1990s.

The allocation of Plan Expenditure in Education to Higher and

Technical Education in the Five Year Plans in India is presented in the

following table:-

32

Table 1.9

Allocation of Plan Expenditure in Education to Higher and Technical Education in the Five Year Plans in India

(Rs. In crores)

Five Year Plan Higher Technical Total Education as % of Total Plan Outlay

First 14 (9) 20 (13) 7.86

Second 48 (18) 49 (18) 3.83

Third 87 (15) 125 (21) 6.87

Annual Plans ~. 77 (24) 81 (25) 4.86

Fourth 195 (25) 106 (13) 5.04

Fifth 205 (22) 107(12) 3.27

Sixth 530 (18) 324(11) 2.70

Seventh 1201 (14) 1083 (12) 3.50

Annual Plans 595 (11) 848 (16) 4.20

Eighth 1516 (7) 2786 (13) 4.90

Ninth Plan 4350 (8) 4778 (9) 6.20

Note: Figures in ( ) are % to total.

Source: Report of the CABE Committee (2005).

Table 1.9 shows that the share of higher education doubled in the total

expenditure on education from nine per cent in the first Five Year Plan

to 18 per cent in the Second Five Year Plan, and increased to an all

time peak of 25 per cent in the Fourth Five Year Plan, and since then it

has been consistently declining, and was 14 per cent in the Seventh

Five Year Plan. The share of higher education in the total education

expenditure in the Eighth and the Ninth Five Year Plans was found to

be a meager 7 to 8 per cent, the lowest proportions in the last half a

century, compared to 18 per cent (actual expenditure) in the Sixth Plan,

and above 20 per cent in the Fourth and the Fifth five year plans.

33

During the first four five year plans, increasing priority was given to

higher education in the five year plans and In the later period, higher

education was paid scant attention in terms of allocation of plan

resources. On the whole, the ninth Plan allocations to higher education

as a proportion of the total expenditure on education are less than the

allocations made in the first plan.

1.3.3 Higher Education in Five Year Plans:

Five year plans set new directions for development-quantitative

expansion, improvement in quality, innovations, as well as several

other dimensions of education development. The share of different

levels of education in the total expenditure in the Five year plans is

presented in the following table:-

Table 1.10

Share of Different Levels of Education in the Total Expenditure in the Five Year Plans (%)

Five Year I II III IV V VI VII VIII IX X Plan

Higher 0.7 1.0 1.0 1.2 0.5 0.5 0.5 0.3 0.5 0.4

Technical 1.0 0.7 1.5 0.7 0.4 0.3 0.4 0.6 0.6 0.7

Source: Report of the CABE Committee (2005)

Table 1.10 shows that the share of higher education in total (five year)

plan expenditure increased from 0.7 per cent in the First Five Year

34

Plan (1951-56) to 1.2 per cent in the Fourth Five Year Plan (1969-74).

But ever since, it has declined continuously to 0.5 per cent in the

Seventh Five Year Plan (1986-90) and further down to 0.3 per cent in

the Eighth Five Year Plan (1992-97). Hardly 0.3 per cent of the total

five year plan expenditure in the Eighth Five Year Plan and 0.5 per

cent in the ninth plan were devoted to higher education, compared to

1.2 per cent in the Fourth Five Year Plan. (see Table 1.7). Accordingly,

the share of higher education in the total expenditure in the Tenth Plan

(2002-2007) is merely 0.4 per cent.

Public Expenditure on higher education was 0.75% of GDP in 1991-92

which has not even doubled in 15 years. Currently public sector

investment in education is roughly 4% of GDP including a share of

higher education at 0.4%. The state governments in India have spent

80.85% and Central government spent only 19.15% of the total budget

allocation for higher education during 2004-05. There has been lack of

consistency in the increase of budget allocation, grants received from

Ministry of Human Resource Development, and expenditure incurred

for higher education in India. The government (both Central and State)

expenditure on higher education accounts to only 3.22% of the GDP. In

India, only 0.37 per cent of GDP is spent on higher education in India

and this too has been falling in recent years. Some detailed, thought

tentative calculations reveal that an increase in the allocation as per

cent of GDP from 0.65 per cent in 2007-08 may enable India to reach

the enrolment ratio of about 15 per cent by the end of the Eleventh Five

35

Year Plan.27 The Public expenditure on Higher education in India is

presented in the following table:-

Table: 1.11

Public Expenditure on Higher Education in India

Year Expenditure on Expenditure on Expenditure higher higher education on education education in in terms of % of in terms of % terms of % of total expenditure of GOP GOP on education

1990-91 0.77 20.05 3.84

1991-92 0.75 19.73 3.80

1992-93 0.73 19.62 3.72

1993-94 0.71 19.61 3.62

1994-95 0.69 19.38 3.56

1995-96 0.65 18.25 3.56

1996-97 0.64 18.13 3.53

1997-98 0.62 17.76 3.49

1998-99 0.69 17.92 3.85

1999-2000 0.86 20.23 4.25

2000-2001 0.89 20.55 4.33

2001-02 0.69 18.06 3.82

2002-03 0.7 18.42 3.80

2003-04 0.68 18.08 3.76

.. Source: Department of hIgher educatIon, MinIstry of Human Resource Development, Government of India (website:www.education.nic.in) quoted in Shaikh Saleem and Gawali Vidya, (2007). Public Expenditure on Higher Education in India, University News, 45 (49), December 03-09,2007, p10

36

Table 1.11 depicts clearly that expenditure (plan and non-plan) on

higher education as a percent of total expenditure has decreased from

20.05% in 1991-92 to 17.92% in1998-99. Though there was some

improvement in 2000-01 i.e. 20.55 % but then it again started falling

and came down to 18.08% in 2003-04.

The National Knowledge Commission recommends that government

support for higher education should be increased to at least 1.5% of

GOP, out of at least 6% of GOP for education. The Central Advisory

Soard of Education (CASE) Committee (2005) also emphasized for the

allocation of 1.5 per cent of national income to higher education (1.0

per cent on general higher education and 0.5 per cent on technical

education. The recommendation to allocate 6 per cent of national

income to education was made long ago by the Education Commission

(1966). The National Policy of Education (1986) had the target of

increasing public expenditure on education to 6 per cent of GOP from

the present 3.74 per cent. The share of higher education as per 2005-

06 is 0.4 per cent of GOP. Also, the Knowledge Commission

recommended that student fees should meet at least 20 per cent of the

total expenditure of universities. This was also a recommendation

made by the Justice Punnayya Committee (Committee on UGC

Funding of Institutions of Higher Education, UGC, 1993) for the Central

Universities and the Or. Swaminathan Committee (High Power

Committee for Mobilization of Additional resources for Technical

Education, AICTE, 1994). However, the CASE committee (2005) has

37

recommended that this 20 per cent should be regarded as the

maximum, as increases beyond this limit would jeopardize equity in

higher education. The Knowledge Commission emphasis at least 20

per cent and favors no limit on this.28

During 1990s, along with the economic reforms, the Union Government

headed by Narsimharao had promised to raise the financial allocation

to education sector to 6 per cent of the GOP. Some attempts were

made and positive results were also obtained with educational

expenditure rising to about 4.4 per cent of the GOP, but it remained

only a short term phenomenon and the budgeted allocation to

education soon came down to its present level of 3.74 per cent of the

GOP. Now again the Government assures that allocation for education

would be increased to 5 per cent of the GDP by the end of Eleventh

Plan and the proposal for increasing the allocation to 6 per cent of the

GOP at the end of the Twelfth Plan.29

1.3.4 Financing higher education:

For the major part of the twentieth century education, including higher

education was financed almost entirely by the State. Till the late

eighties, in most countries across the world, governments met nearly

90 per cent of the expenditure on higher education. The state's share

was 88 per cent in Australia in 1988, 89.5 per cent in France in 1984,

90 per cent in Norway in 1987, and about 90 per cent in India in 1990,

and even the United States it was about 70 per cent.30 However, since

38

then there has been a rethinking about the role of the government in

the financing of higher education as the government finds it difficult to

fund due to 'massification' of the higher education. According to the

Human Development Report 2006, India ranks 126 with respect to the

share of public expenditure on education and the same rank in human

development index among the 177 countries.

India spends just $406 (about Rs.18,600 per student on higher

education. That is just a fraction of countries like China ($2,728 or

Rs.125,000), Brazil ($3,986 or Rs.182,000) and Malaysia ($11,790 or

Rs.540,000) spend.31 The details about the international comparisons

in Higher education are presented in the following table:-

Table 1.12

International Comparisons in Higher Education

country Literacy GOP Expenditure Expenditure (% of (in $ on education on higher

Population) billion) in terms education in % of GOP terms of

(2000-2002) %ofGOP France 99 2,002 5.6 1

Canada 99 979 5.2 1.8

US 99 11,667 5.1 1.4

UK 99 2,140 4.7 1.1

Germany 99 2,714 4.3 1.1 India 65 691 4.1 0.8 Japan 99 4,623 3.9 0.5

Source: Human Development Report 2005, published for the UNDP & World Bank Report year 2005 & 2006 cited in Shaikh Saleem and Gawali Vidya, (2007). 'Public Expenditure on Higher Education in India', University News, 45 (49), December 03-09,2007, p11.

Table 1.12 depicts the international comparison in higher education.

Just 65 per cent of population of India is literate, the literacy level of the

39

other developed nations is almost reaching 100 per cent e.g. US 99 per

cent, UK 99 per cent. Yet they are spending huge amount on education

compare to India. Figures reveal that India needs to increase at least

double of the current public expenditure on education to achieve the

100 per cent literacy.

1.3.5 Public Expenditures on Scholarships in Higher Education:

One can note a steep decline in the budgets for scholarships in higher

education that have great potential for promoting equity in higher

education, as a large proportion of scholarships are meant for weaker

sections. What is important is scholarships themselves constitute a

very small proportion of total expenditure on higher education. At a

time when fees were increasing, and when the economic reform

policies caused severe problems to the lower and middle income

groups, allocations to scholarships were also reduced. (see Table

1.13). Additional budgets for scholarships and other student welfare

schemes seem to be least forthcoming.

The details related to public expenditure on scholarships in Higher and

Technical education are presented in the following table:-

40

Table 1.13

Public Expenditure on Scholarships in Higher and Technical Education

Higher Education Technical Education % of Total In Current % of Total In Current In 1993-94 In 1993-94

prices (Rs. Prices (Rs. Expenditure Prices Prices (Rs. Expenditure

in Crores) in Crores) on Higher (Rs. in

Crores) on Technical

Education Crores) Education 1990-91 11.30 15.35 0.49 2.00 2.72 0.45

1991-92 13.00 15.52 0.53 2.36 2.82 0.48

1992-93 12.60 13.83 0.47 2.11 2.32 0.37

1993-94 13.40 13.40 0.43 5.74 5.74 0.94

1994-95 14.00 12.77 0.40 1.91 1.74 0.26

1995-96 14.70 12.30 0.38 1.84 1.54 0.23

1996-97 17.10 13.33 0.40 6.25 4.87 0.68

1997-98 13.40 9.79 0.28 1.92 1.40 0.19

1998-99 20.30 13.73 0.33 2.12 1.43 0.17

1999-12000 18.99 15.85 0.15 1.66 1.08 0.12

~000-01 15.31 9.64 0.22 3.14 1.98 0.25

~001-02 11.55 7.03 0.18 3.63 2.21 0.28

12002-03 20.81 12.17 0.29 3.86 2.26 0.25 RE 12003-04 23.77 13.49 0.32 3.75 2.13 0.23 BE RE: Revised estimate BE: Budget Allocations

Source: Report of the CABE Committee (2005)

Table 1.13 brings out clearly the reduction in public expenditure on

scholarships in higher education. In 1990-91, it was 11.30 crores which

did not increase substantially and stood at meager 11.55 crores at

current prices in 2001-02.

1.3.6 Education becoming costly:

Increase in cost recovery rate through student fees has been an

important initiative taken in the 1990s in most universities and

41

institutions of higher education. Many universities and state

governments have made very significant upward revisions in fee levels

in the recent years, besides introducing different kinds of fees. Fee

income includes not only tuition fees paid by the students, but also

other fees such as examination fees, and others. Other fees include a

variety of fees such as entrance examination fee, admission fee,

registration fee, eligibility fee, library fee, laboratory fee, sports fee,

convocation fee, certificate fee, fee for marks statement, etc. In the

total fee income, in fact, tuition fee forms a small proportion. For

example, while based on tuition fee alone, the fee income was

estimated to be about 2-3 per cent in late 1980s in higher education in

India, the total fee income was of the order of about 15 per cent. In the

case of universities more recent information is available. For example,

in the University of Bangalore, tuition fee income amounted to 2.2 per

cent of the total recurring income, while income from all fees accounted

for above 40 per cent in 1999-2000. Student fee of various kinds has

been raised by several times. In many universities and institutions, fee

increases have been erratic and unsystematic, with substantial

increases in the fees for every item, including application/registration

fee, marks sheets and convocation fees, transfer certificate etc. Many

new types of fees are introduced for services that were earlier not

directly charged or used to be delivered free like increases in fees in

non-tuition items such as application fee, development fees, library fee,

laboratory fee, etc. and charges for hostels and similar other services.

In the case of hostels and similar other 'student welfare' services

42

almost full cost recovery is being attempted. As reported in CABE

Committee report of 2005, a recent study found that out of 39

universities studied, more than half a dozen universities raised fee

rates in such a way that they could generate more than 50 per cent of

the total recurring income of the respective universities from student

fees in late 1990s; and another 13 universities could generate more

than 20 per cent. Open Universities like Indira Gandhi Open University

and Karnataka Open University and many conventional universities

seem to be generating substantial amounts from fees. Further,

universities with affiliated colleges are found to be able to generate

more fee income than others.

1.3.7 Increasing Fee structures:

The education system in the country saw a revolution with the

emergence of a whole new class of education providers, including

private institutes, distance education providers, self-financing courses

in public institutions, foreign education providers etc.

The number of private institutes has increased in the country

impressively whereas the number of public institutions - both

government and aided institutions - has increased only marginally.

Nearly 30% enrollment (2005-06) is in private unaided institutions,

which do not receive any grants from the government. The growth has

been predominantly in institutions offering professional courses. The

minimum fee at an engineering college is Rs. 35,000 (the better ones

charge more), while an MBA can cost around Rs. 200,000; at a foreign

43

university the same comes with a tag of Rs.15 Lakhs (Rs. 1.5 million)

or so. The fee structure for various courses are presented in the

following table:-

.Table 1.14

Fee Structure for Various Higher Education Courses:

(Amount in Rs.)

Course Fees (Min) Fees (Max)

Medical 61,700 1,41,000

Engineering 12,000 75,000

Management 72,000 per year 200000 per year

Graduate 3,500 15,000

Post 8,000 40,000 Graduate Source: CompIled from Vanous Sources.

It is clear from Table 1.14 that maximum fees are charged by the

management courses. Indian Institute of Management, Calcutta

charges First-year students Rs.3 Lakhs which was raised from Rs. 2

Lakhs in March 2008, which would be raised further to Rs.4 Lakhs in

2009.

India has 128 maritime colleges, with four being government assisted

Maritime education fees now range from Rs. 75,000 to Rs. 2.5 Lakhs

per annum, going up to Rs. 2 Lakhs to Rs. 10 Lakhs.32 The Economist

survel3 on higher education further indicates that annual fee income

alone is estimated at $ 30 billion.

44

1.3.8 Students going abroad:

According to a survey conducted by the Associated Chambers of

Commerce and Industry of India (ASSOCHAM), released on the first

day of the 3rd education fair (June 2007) organized by ASSOCHAM,

also stated that around 85% students in the UK, 77% in the US and

70% in Germany & France took loans to pursue their higher education.

Fee structures for courses abroad are 5 times higher the cost of

courses in India.34

1.4 Role of Nationalized banks in providing loan for Higher

education:

Post Nationalization period witnessed rapid branch expansion in

unbanked areas of district with the result of significant increase in

public sector bank branches trom 8262 to 67283 in June 2004. Bank

credit also increased from Rs.3036 crores in 1969 to Rs.61 ,9660

crores in 2004. In order to regulate bank credit, Reserve Bank of India

pressurized the commercial banks to popularize loans for priority

sector, which included agriculture, small scale industry, transport, small

traders and education. Banks have become more supportive in

extending loans at attractive rates of interest with simple formalities.

The number of educational loans sanctioned to students by

nationalized banks has increased sharply over the past three years.

Nationalized banks are extending more loans to those students going

abroad for higher studies.

45

1.4.1 Student loan programmes:

The government of India, constrained by the unavailability of public

resources, and influenced partly by international thinking, began

showing interest in student loans. Student loan financing is, however,

not a new phenomenon. A scheme of interest-free national loan

scholarships was introduced in 1963, with a view of improving access

to higher education without the government really bearing the total

burden of higher education in the long run. It was originally anticipated

that student loans would help in setting up a revolving fund in five to

ten years, and the scheme would become a self funding one in the

course of time. It was also advocated on the grounds that such a

scheme would prevent wasteful expenditure, as only the needy

students would borrow from the government for higher education.

Students would also become serious with their studies and in the

employment market, as they would carry a debt. Besides, it would

increase the value of the education in the eyes of consumers, as

anything provided free is not much valued. Students would also

become conscious, and know how much the society invests in their

education. Thus the internal efficiency of higher education was

expected to increase because of student loans. The method of student

loans was envisaged to reduce in the long run the burden of the public

exchequer of financing higher education, so that scarce public

resources could be allocated to sectors like primary education that

have higher social advantage. Every year about 20,000 loan

scholarships are given.

46

1.4.2 Problems with student loan programme:

The scenario of student loans disbursed by the government has not

been very encouraging. In India, of the total investment of RS.869

million made on student loan programmes during 1963-64 to 1987-88,

only 5.9 per cent was recovered. The costs of administration of loans,

i.e. costs incurred on personnel and office expenses on administration

and attempts to recovery, were also very high. The net financial gains

from student loan programmes were believed to be not substantial.

There could not be any savings in public expenditure in the short and

medium term periods. In fact, the governments were pressurized to

allocate more public resources for higher education in the form of

student loan funds. The AICTE (1994) argued that a huge capital base

of RS.3000 crores has to be built to float loans to students in technical

education.35 Also, the credit market in India was not well developed to

float educational loans. The lending financial institutions seed security

which the economically weaker students, for whom the programme

was meant were not able to provide. Also, most types of loans

required collateral provision that provide compensation to lenders in

the event of default of loan. Hence even if the investment in education

carried higher rates of return, loans were not available to the poor due

to problems of repayment.

As per survey (2006-07) conducted by Associated Chambers of

Commerce and Industry of India (ASSOCHAM) Education Committee,

India spends about $ 3.5 million USD for the merit-cum-scholarship

47

schemes whereas US spends nearly $ USD 80 billion on higher

education annually mostly in the form of students aid. There are large

numbers of students who are not in a position to pursue higher studies

due to lack of resources. The survey (2006-07) conducted by

Associated Chambers of Commerce and Industry of India

(ASSOCHAM) suggests less than 3% Indian students avail of

education loans. The study finds that most of these students are from

middle class families.36

1.4.3 Educational Loan Scheme

The Reserve Bank of India has evolved an educational loan scheme to

facilitate financial assistance to students seeking admission to private

professional colleges to pursue the full time graduate/post-graduate

courses. During the Union Budget of 2001-2002, the Government has

come out with the Educational Loan Scheme and subsequent to that,

the Finance Minister after meeting the heads of the Commercial Banks

on 7 April 2001; has formally announced the scheme. The scheme is

meant for financial assistance to the poor and needy to undertake

basic education and for the meritorious students to pursue

higher/technical education. The scheme covers studies from school

final to the advanced professional courses, both inland and abroad.

All public sector banks have been directed by RBI to provide

educational loans to students who fulfill certain eligibility criteria. The

RBI norms are based on the recommendations of a study group

48

constituted by the Indian Banks Association, headed by Canara bank

CMD R J Kamath. Based on recommendations made by the Study

Group, IBA had prepared a Model Educational Loan Scheme in the

year 2001 which was advised to banks for implementation by Reserve

Bank of India along with certain modifications suggested by the

Government of India.37

The objective of the Model Educational Loan scheme is to provide

financial assistance by way of loans to the meritorious and indigent

students in order to encourage them to pursue the full time

graduate/post- graduate professional courses in private professional

colleges for developing the technical skills will be fulfilled, however,

only if the banks implement it properly. The Educational Loan Scheme

aims at providing financial support from the banking system to

deserving/ meritorious students for pursuing higher education in India

and abroad. The main emphasis is that every meritorious student

though poor is provided with an opportunity to pursue education with

the financial support from the banking system with affordable terms

and conditions. No deserving student is denied an opportunity to

pursue higher education for want of financial support.

The norms provide for education loans at Prime Lending Rate (PLR)

up to Rs. 4 Lakhs and at 100 basis points over PLR for loans

exceeding Rs. 4 Lakhs. The funds to needy students were subject to a

ceiling of Rs. 7.50 Lakhs for studies in India and Rs. 15 Lakhs for

49

studies abroad, according to the circular of 2001. In line with the

announcement made by the Hon'ble Finance Minister in his Budget

Speech for the year 2004-05, IBA had communicated certain changes

in the security norms applicable to educational loans with limits above

Rs.4 Lakhs and up to Rs. 7.5 Lakhs.

At the behest of the Centre and the RBI, the banks agreed in 2000 to

provide loans up to Rs. 7.5 Lakhs for studies in India and Rs. 15 Lakhs

for studies abroad. In the year 2004-2005 this limit has been revised

and it has increased to Rs. 10 Lakhs for studies in India and Rs. 20

Lakhs for studies abroad.38 Public sector banks follow the guidelines of

the RBI with regard to rate of interest and security norms and other

formalities.

Banks are required, under current guidelines of the RBI, to direct 40

per cent of their loans to "priority sector". Priority sector includes loans

given to agriculture, small-scale enterprises, micro credit, housing

loans (less than Rs. 15 Lakhs), education loans besides weaker

sections of society among other categories.

1.5 Present Position of Nationalized banks with reference to

financing higher education.

Nationalized banks are extending loans more and more to those

students going abroad for higher studies. There are at present 28

Nationalized Banks in the country. The main banks which are involved

50

in extending educational loans are the State Bank of India, Bank of

Baroda, Bank of India, Union Bank of India, State Bank of Patiala, and

other associate banks of SBI and Canara Bank etc.

Earlier, banks were giving priority to traditional and professional

courses like MBA, engineering, medicine, research and computer

courses etc. Now banks have also been extending loans for careers

like pilot, airhostess, nursing and tourism-related jobs.

Students can also take a tax rebate on an education loan. In Budget

2006-07, the government has also allowed parents to take this benefit.

Banks are expected to increase their thrust in this segment as part of

retail credit.

Regarding the volume of education loans, every year has seen a jump.

As education is gradually becoming more and more expensive, banks

are aggressively pushing retail finance. Moreover, giving loans to

students helps banks build up a long-term relationship with them.

According to Finance Ministry data cited in The Hindu, since its launch

in 2001, the Education Loan Scheme has grown from roughly 50,000

accounts and Rs. 670 crores loans as on March 31, to approximately

1,53,000 accounts and Rs. 2,600 crores loan amounts on March 31,

2004.

During the first year of the scheme (2001-02), Banks had sanctioned

48,649 loans of Rs.668 crores. During 2004-2005, the 27 PSU Banks

51

together had sanctioned 1,69,768 fresh loans for an aggregate amount

of Rs.3525.91.39 The number of accounts and amount disbursed by

Public Sector Banks is presented in the following table:-

Table: 1.15

Number of Accounts and Amount Disbursed by Public Sector Banks

Year Number of Amount Accounts (Rs. in

Crores) 2000-2001 48694 668

2001-2002 88614 1033

2002-2003 140925 1995

2003-2004 107829 1983

2004-2005 210617 2782

2005-2006 306557 3320

2006-2007 361213 4148

2007-2008 336758 5635

Total 1601207 21564

Source: Compiled from Reserve Bank of India, Indian Banks' Association.

Table 1.15 reveals that the number of students taking educational

loans has increased from 48694 in 2000-2001 to 336758 in 2007-2008.

The table also reveals that the amount disbursed from 2000-2001

increased from Rs.668 crores to Rs. 5635 crores in 2007-2008.

Considering the data compiled by Indian Banks Association, education

loans outstanding of public sector banks were Rs. 10,004 crores as on

March 31, 2006 against Rs.6,713 crores as of March 31, 2005 - a 49

per cent growth. On 5th February 2007, Finance Minister P.

Chidambaram declared that education loans increased to Rs. 12,337

crores, posting a growth of 31 per cent.40

52

The amount of outstanding sum under education loan schemes

increased from Rs. 4,550 crores in 2003-04 to Rs. 10,100 crores in

2005-06. Also, some of the private banks have jumped into this territory

which is unexplored so far. Meanwhile, education loans increased to

Rs. 12,337 crores, posting a growth of 31 per cent, as declared by

Finance Minister P. Chidambaram.

Bankers expected demand for education loans to soar by over 25 per

cent in 2006-07. A reason for this sector continuing to be attractive

over 2003-2006 is negligible defaults. Banks also see students as

potential customers to be tapped for future business. Apart from

students rushing overseas, the mushrooming of private colleges has

also helped banks in building this portfolio. The quantum and term of

loans vary from bank to bank. Currently they lend up to Rs. 10. Lakhs

for studies in India and up to Rs. 20 Lakhs for studying abroad.

Repayment is in the form of equated monthly installments (EM Is) and

the first payment generally commences one year after the course or six

months after securing the job. The tenure can be from three to eight

years. Most banks do not require any margin up to Rs. 4 Lakhs.

Beyond that a margin of 5 to 15 per cent is collected. Similarly

collateral is not required for loans up to Rs. 4 Lakhs. The interest

charged is the Prime Lending Rate or one percentage point plus. It is

also to be noted that to encourage banks to lend more to the poor and

needy students, education loans up to Rs. 10 Lakhs for studies in India

53

and Rs. 20 Lakhs for studies abroad are considered priority sector

advances.

The Centre wants to ensure that no student is denied from higher or

professional education due to his/her poor financial background.

According to a survey conducted by the Associated Chambers of

Commerce and Industry of India (ASSOCHAM), it was found that a

majority of the student population is backed by poor financial

assistance and is not able to pursue any higher or professional

education. Moreover, only 3% students, belonging to middle class

families take loans for higher education. The survey, released on the

first day of the 3rd education fair organized by ASSOCHAM, also

stated that around 85% students in the UK, 77% in the US and 70% in

Germany & France took loans to pursue their higher education.

ASSOCHAM survey also revealed that India spends about $ 3.5 million

USD for the merit-cum-scholarship schemes whereas US spends

nearly $ USD 80 billion on higher education annually mostly in the form

of students aid. 41

Public sector banks have 90 per cent market share under this segment

and are becoming more and more active as they are also organizing

camps in educational institutions themselves to market their schemes.

The number of educational loans sanctioned to students by

nationalized banks has increased sharply over the past three years.

54

Investment in higher education is not only low but also inconsistent in

growth. Development of human capital is a national priority and it

should be the endeavored of all that no deserving student is denied

opportunity to pursue higher education for want of financial support.

Loans for education should be seen as an investment for economic

development and prosperity. Knowledge and information would be the

driving force for economic growth in the coming years.

1.6 REVIEW OF LITERATURE:

After independence, higher education in India has been largely

financed by the government. However, taking into consideration the

allocation of total plan expenditure on education and more specifically

on higher education which has shown consistently decreasing trend, it

is clear that the universities and colleges cannot depend wholly on the

state resources and will have to generate resources on their own. The

possible sources are tuition- and other fees, consultancy, corporate

support and alumni contributions (Powar 2002)42. Also, one of the

inferences mentioned thereof states that in the early part of the twenty­

first century, state support for higher education will steadily decrease

making it necessary for academic institutions to generate revenue

through their own efforts. New and innovative means for generating

funds and diversifying resources will have to be found. The

significance of the private higher educational sector is perhaps

inevitable and necessary. Along with the increased role for private

participation in the higher education sector, the twenty-first century

55

higher education will be increasingly internationalized. Powar puts it as

yet another important inference as "Internationalization of higher

education is a fact of life that cannot be neglected. It can both enrich

the teaching-learning process and provide financial stability to

institutions. It is for the Indian universities to take advantage of the

opportunities that exist".

Public financing of higher education in India has major limitations. The

rapid growth of higher education in the post-independence period

resulted in democratization of higher education. Yet a majority of the

students in higher education are still from relatively economically better

off sections of the society. Their ability to pay is higher than what they

actually pay (Mishra, 2006)43. Public budgets for higher education are

at best stagnant. In the present scenario, the government is not in a

position to maintain, or increase, the present level of public subsidies to

higher education, unless additional resources are generated through

conventional and non-conventional methods. However, the recent

influx of private institutions i.e. 'Pure' or 'unaided' private colleges do

provide financial relief to the government in providing higher education.

The scheme of interest-free national loan scholarships introduced in

1963 aimed at improving accessibility to higher education without

burdening the government totally in the long run. However the

experience of loan scholarships is not encouraging due to the fact that

the scheme was planned and implemented without any relation to the

fee structure.

56

According to the CABE Committee report (2005)44, the official view has

been that the levels of fees in higher education in India are very low

and that there exists much scope for increase in the fees. Many

Universities and state governments have made very significant upward

revisions in fee levels in the recent years. There are different

components to computing fees viz. entrance examination, eligibility,

admission, certificate, laboratory, sports, etc. Many new types of fees

are introduced. Fees have undergone manifold increase and the fee

increases have been erratic and unsystematic.

The tuition fees and other fees as a proportion of the recurrent costs of

higher education in developing countries like India are reasonably high,

15-20 per cent. It is also necessary to note that the proportion of

student or household expenditure on higher education is much higher

in developing countries like India. The UGC (1993) committee and the

AICTE (1994) committee suggested that generation of funds by the

Universities (from all the sources including fees) should reach 15 per

cent in a five-year period, and 25 per cent in a ten year period. To

protect the interests of the weaker sections, it was considered vital to

introduce scholarship loan programmes. However these programmes

are not so beneficial. (Tilak, 1995).45

Indian higher education is an opportunity for economical growth and

power. The government's share in overall education expenditure has

been declining steadily. The middle class has greater purchasing

57

power and accordingly Indians are prepared to pay more for higher

education. In India, the growth of private sector education has seen

manifold increase and more so in case of consumption of education

abroad. Approximately 90 per cent of the business schools are private

sector institutions. Private expenditure on education has risen 10.8

times in the last 16 years, and for the poor, the same has rose even

faster, by 12.4 times clearly indicating the influx of students to the

burgeoning private sector which charge considerably huge sums from

the students. (Kapur and Mehta, 2004).46

In India, most of the growth in the rapidly expanding higher education

sector took place in private unaided college or in self-financing

institutions. It is difficult to provide grant-in-aid to private colleges by the

government or the universities and therefore many universities have

granted recognition or affiliation to unaided colleges. Also many

universities have authorized new 'self-financing' courses even in

government and aided colleges. This all has resulted in higher

education, especially by private institutions which mostly unaided,

become very costly. The private unaided education provides nearly half

of the higher education in the state demonstrating the considerable

paying capacity within the Indian middle-class. India continues to lead

the world in the number of students studying abroad. It is

recommended therefore to have a national level student loan

programme carrying a guarantee for those students who are unable to

fulfill the financial surety requirements. This will give a major boost to

58

higher education aspirants belonging to the lower income groups.

(Sanat, 2006).47

The liberalization and globalization of the Indian economy is a major

factor behind the large and growing numbers of Indian students

seeking education abroad. Before 1990s, only a privileged Indian

family could afford to send their children abroad to pursue higher

studies. But with the rise of new Indian middle class, and the

increased wealth of the Indian upper class, the numbers of students

who pursue foreign education has skyrocketed. (Piar et ai, 2007).48 The

Report on Trend and Progress of Banking in India, 2006-0749 points out

about the initiated measures taken by the Government of India for

social control over banks in 1967-68, which aimed at securing a better

adaptation of the banking system to the needs of economic planning

and its playing a more active and positive role in aiding sectors like

agriculture and small scale industries (SSI). One of the objectives of

nationalization of banks was to ensure that no viable productive

endeavor should fail for lack of credit support, irrespective of the fact

whether the borrower was big or small. Thus, the concept of priority

sector lending was evolved further to ensure that assistance from the

banking system flowed in an increasing measure to the vital sectors of

the economy and according to national priorities. The nationalization of

banks gave a major boost to lending to priority sectors like agriculture,

small-scale industries and other socially desirable sectors. The

amount of loans lent by these banks to one of the sectors i.e. higher

59

education has been increasing. Banks are asked to reach a certain

minimum level of lending to these sectors.

1.7 EXACT TITLE OF THE RESEARCH PROBLEM:

The exact title of the Research Problem is as under:

"Role of Nationalized Banks in supporting higher education through

educational loans with special reference to Mumbai region".

1.8 DEFINING THE PROBLEM:

Higher Education is becoming costly day by day. Government is

withdrawing financial support for promoting higher education in India.

The expenditure on higher education has reduced tremendously over

the years. Privatization of Education is also another major cause for

augmentation of costly higher education. Foreign countries charge

three to five times of the fees charged for similar courses in India.

Banking reforms have definitely helped the growth of Bank Credit.

Declining public budgets for education on the one hand, and the need

for more resources on the other, many developing countries such as

India, has been examining alternative methods of financing higher

education. One such mechanism is student loans. Nationalized banks

have 90 per cent market share under education loans segment. Further

they are becoming more and more active as they are also organizing

camps in educational institutions themselves to market their schemes.

Therefore there is a need to study the experience of the education

loans sanctioned by nationalized banks and the support it provides to

60

higher education. The study would examine issues and problems

specific to education loans, with a view to identifying measures for

improvement in the performance of educational loans schemes of

Nationalized Banks and for their enhanced role.

1.9 OBJECTIVES OF THE STUDY:

The objectives of the Study are as follows:

1. To evaluate the performance and growth of Educational loan

Schemes offered by Nationalized Banks in respect of Mumbai

region.

2. To study the volume and growth patterns in educational loan arena.

3. To evaluate the role played by RBI as a regulatory in controlling and

developing this segment.

4. To study the related issues and problems in providing educational

loans.

5. To make suggestions for furthering the growth and performance of

educational loan schemes of Nationalized Banks and for their

enhanced role.

1.10 HYPOTHESES:

The hypotheses for the study are as follows:

"The Nationalized banks have been playing very important role in

supporting the higher education through educational loans."

61

1.11 BRIEF OUTLINE OF RESEARCH METHODOLOGY:

RESEARCH METHODOLOY:-

To carry out the research effectively the following research

methodology was adopted:-

I. Method:

Survey Method was used for conducting this research.

II. Period of study:

The proposed study covered the period from 2001 to 2008 and

considered the data related to educational loans for higher education,

provided by Nationalized Banks in Mumbai region.

III. Sampling:

There are 28 Nationalized banks in India. Out of these, seven banks

were selected as sample for the study. The following banks have

been selected as sample as their Head Offices or Regional offices

are in Mumbai:-

1. Bank of Maharashtra.

2. Bank of Baroda.

3. Bank of India.

4. Central Bank of India.

5. Dena Bank.

6. Union Bank of India.

7. State Bank of India.

Primary data was collected from 170 educational loans borrowers of

nationalized banks. The borrowers were selected on random basis.

Primary data has also been collected from the bank managers of the

62

nationalized banks within Mumbai region. The data was collected from

11 respondents who were selected on random basis.

IV. Data Sources:

a). Primary Data:

The primary data was collected from the borrowers with the help of a

well designed structured questionnaire having open-ended and closed­

ended questions. The researcher personally visited the borrowers on

random basis and also visited the banks to get the addresses of the

borrowers. There was a good response from the banks as well as the

borrowers. The data was collected from 170 respondents within a

period of 4 months i.e. May 2009 to August 2009.

The primary data has also been collected from the bank managers of

the nationalized banks within Mumbai region. The data has been

collected with the help of a well designed structured questionnaire

having open-ended and closed-ended questions. The researcher

personally visited the banks on random basis to get the responses of

Bank Managers on the educational loan scheme. The data was

collected from 11 respondents within a period of 1 month i.e. August

2009.

b) Secondary Data:

The secondary data has been collected from the Indian Banks

Association, RBI publications and RBI circulars, newspapers, in-house

63

publications and newsletters of banks, Websites of Nationalized banks,

Libraries.

V. Analysis and interpretation of data:

The data collected has been analyzed and interpreted for drawing

conclusions. The Statistical tools like Percentages, Averages, Mean,

Standard Deviation, Correlation Coefficient, and other appropriate tools

have been used to draw conclusions. Z test has been used to test the

hypotheses. Data has been presented using various tables. The data

has been further represented using bar diagrams. Based on the

conclusions drawn through the above analysis, suggestions are given

for the improvement of the performance and growth of the educational

loans offered by nationalized banks.

1.12 SCOPE OF THE STUDY:

The study will help nationalized banks in providing educational loans to

the students. Higher education in India is globalize as well as

privatized. The cost of education has also increased tremendously.

Therefore, the middle class students have to borrow money for their

education. The scope of the banks has been widened in case of

educational loans arena. This study will point out problems in granting

loans. It will also give some suggestions which will help banks,

students, parents and government in this respect.

64

1.13 LIMITATIONS OF THE STUDY:

1. There is a significant increase in the number of banks providing

educational loans. However, the study undertakes only Nationalized

Banks into consideration. This may not reflect the observations and

study of other banks.

2. The study is based on Nationalized Banks in Mumbai region only. It

does not cover other regions of the country.

1.14 CHAPTER SCHEME:

1. Chapter 1- Introduction.

2. Chapter 11- Education Loan Schemes.

3. Chapter 111- Data Analysis (Part I - Secondary Data).

4. Chapter IV- Data Analysis

(Part 11- Primary Data- Borrowers' Responses)

(Part III-Primary Data- Bankers' Responses)

5. Chapter V - Conclusions and Suggestions.

1.15 PLAN OF STUDY:

• First six months report of Feb/March 2008 - Chapter I.

• Second Six months report August/Sept 2008 - Chapter II.

• Third Six months report March/April 2009 - Chapter III.

• Fourth Six-months report of Sept/Oct 2009- Chapter IV and V.

65

ENDNOTES:

1 Agrawal Meenu and Sharma Meenakshi (2008). 'Indian Banking: New Horizons' in Paradigm Shift in Indian Banking, Uppal R.K. (ed.), Mahamaya Publishing House, New Delhi p 121.

2 K.C. Shekhar (1996). Banking Theory and Practice, Vikas Publishing house Pvt. Ltd., New Delhi, p 355.

3 Financial Intelligence Unit - India, Ministry of Finance, Government of India. Available from http://fiuindia.gov.in/Definitions.htm

4 K.C. Shekhar (1996). Op.cit. p 39.

5 K.C. Shekhar (1996). ibid pp170-172.

6 Balachandran, G. and TCA Srinivasa Raghavan (2007). The Oxford companion to economics in India, Oxford University press, New Delhi, pp 454-457

7 http://www.statebankofindia.com/viewsection.jsp?lang=0&id=0.11 ,86

8 K.C. Shekhar (1996). loc. cit. P 267.

9 K.C. Shekhar (1996), ibid P 275.

10 K.C. Shekhar (1996), ibid P 273.

11 Misra. S.K. and Puri V.K. (2006). Development Issues of Indian Economy, Himalaya Publishing House, Delhi, p 246.

12 Misra. S.K. and Puri V.K. (2006). ibid P 246.

13 Reserve Bank of India (2008). RBI Quarterly Statistics Report September 2007, Statement No.5, p7. Available from www.rbi.org.in/scripts/BS_PressReleaseDisplay, January 2008.

14 Report on Trend and Progress of Banking in India 2006-07. Bombay: Reserve Bank of India. p 72.

15 Report on Trend and Progress of Banking in India 2006-07. ibid.

16 Report on Trend and Progress of Banking in India 2006-07. ibid P 75.

17 Susai Mary, and R Seetharam. ( 2006). Global Challenges and National Response, University news, August 14-20.

66

18 Debroy Bibek (2007). 'Higher Education and Control' in The Oxford companion to economics in India, Basu Kaushik (ed.), Oxford University Press, New Delhi, p248.

19 K Sudha Rao and Singh Mithilesh. (2007). 'University Education in India: Challenges Ahead', University News, 45(02) January 8-14,2007, P 6.

20 K Sudha Rao and Singh Mithilesh. (2007). ibid P 2.

21 Desai A.S. (1995). 'Policies in Higher Education in India' in Policies of Higher Education, Powar K.B. (ed.), New Delhi: Association of Indian Universities, p 2.

22 Varghese Mariamma (2007). 'Knowledge Commission Report on Higher Education System: An Assessment'. University News, 45 ( 48) November 26-December 02,2007, P 43.

23 K Sudha Rao and Singh Mithilesh. (2007). Loc. Cit. P 2.

24 Debroy Bibek. (2007). Op. Cit. p248.

25 'Higher Education: Free degrees to fly', The Economist (2005) , February 26th-March 4th, pp 63-65 quoted in Kaul Sanat (2006). Higher Education in India: seizing the opportunity. Indian Council for Research on International Economic Relations (ICRIER) Working Paper No. 180, New Delhi.

26 Shaikh Saleem and Gawali Vidya, (2007), " Public Expenditure on Higher Education in India", University News, 45 (49), December 03-09, 2007, p12.

27 Tilak J.B.G. (2007). 'Knowledge Commission and Higher Education'. University News, 45(48) ,November 26- December 02,2007, p62.

28 Tilak J.B.G ( 2007), ibid p59.

29 Chauhan C.P.S. (2007). 'Knowledge Commission on Higher Education: A Critique'. University News, 45(48), November 26-December 02,2007, p108.

30 Powar K.B. (2002), Indian Higher Education: A conglomerate of Concepts, Facts and Practices, Concept publishing company, New Delhi, p78.

31 Shaikh Saleem and Gawali Vidya, (2007). Op. Cit. P 10.

67

32 Mitra Amit (2007). 'Panel suggests course correction' . Business Line, Business Daily from THE HINDU group of publications. Available from http://www.thehindubusinessline.com/2007/01/29/stories/20070129000 80600.htm, Jan 29th 2007.

33 Survey: Higher Education, Economist, September 10th _16th , 2005

quoted in Kaul Sanat (2006). Higher Education in India: seizing the opportunity. Indian Council for Research on International Economic Relations (ICRIER) Working Paper No. 180, New Delhi.

34 'lower interest rates on higher education loans'. June 04, 2007. Available from http://www.indiaedunews.netlln-focus/May­June_2007 Ilower _interescrates_ on_higher _education_loans_ 12701

35 Tilak J.B.G. (1995). Cost Recovery Approaches in Education, Occasional Paper No.19, New Delhi: National Institute of Educational Planning & Administration in Policies of Higher Education, Powar K.B. (ed.), New Delhi: Association of Indian Universities, pp 21-35.

36 'lower interest rates on higher education loans'. June 04, 2007. ibid.

37 RBI letter RPCD.PlNFS.BC.NO.83/06.12.05/2000-01 April 28, 2001 Scheduled Commercial Banks.

38 http://www.iba.org.in/educationaUoan.asp

39 James Rabindran D. (May 2005). ' Educational loan scheme :Mitigating Credit Risk' in The Indian Banker, Mumbai, Vol 1 (5).

40 'Public sector banks not to up home loan rates', The Tribune, Available from http://www.tribuneindia.com/2007/20070206/biz.htm#1, February 5th

, 2007.

41 'lower interest rates on higher education loans'. June 04, 2007. ibid.

42 Powar K.B. (2002), ibid p78.

43 Mishra Sharda (2006). Ugc And Higher Education System In India. Book Enclave, Jaipur, pp 148-160.

68

44 Report of the CABE Committee (2005) on Financing of Higher and Technical Education, Central Advisory Board of Education, MHRD, Government of India, New Delhi, Available from http://www.education.nic.in.in/cabe/Report%20CABE%20 Committee% 200n% 20Financing% 20Higher%20and20 Tech-nical%20 EducationL.pdf, June 23rd

, 2005.

45 Tilak J.B.G. (1995). Loc cit.

46 Kapur Devesh and Mehta Pratap Bhanu (2004) , 'Indian Higher Education Reform: From half-baked Socialism to half-baked capitalism', Working Paper No. 10B, Center for International Development, Harvard University, September 2004. Available from http://www.cid.harvard.edu/cidwp/pdf/10B.pdf

47 Kaul Sanat (2006), 'Higher Education in India: Seizing the opportunity' , Working Paper No. 180, Indian Council for Research on International Economic Relations (ICRIER), New Delhi, May 2006. Available from http://www.icrier.org/pdfIWP_179.pdf

48 Chand Piar and Gupta Yogesh, Sooden Meenakshi and Kumar Sanjeev(2007). 'Impact of Globalisation on higher education in India'. University News, 45(46) November 12-November 1B, 2007, p1.

49 Report on Trend and Progress of Banking in India, 2006-07. Available from www.rbi.org.in. /rdocs/Publications.

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