**Executive Summary**
This document, released by the Ministry of Finance on December 15, 2025, highlights the improvement in the asset quality of education loans provided by Public Sector Banks (PSBs). The Gross Non-Performing Assets (NPAs) in outstanding education loans of PSBs have decreased significantly from 7% in FY 2020-21 to 2% in FY 2024-25. PSBs are also extending collateral-free education loans beyond ₹7.50 lakhs based on their Board-approved policies.
**Key Points / Main Content**
* **NPA Reduction:**
* Gross Non-Performing Assets (NPA) of PSBs in outstanding education loans reduced from 7% in FY 2020-21 to 2% in FY 2024-25.
* State-wise information on this is not maintained by the RBI.
* **Loan Policy Framework:**
* Credit related matters of regulated entities (REs) are largely deregulated.
* These are governed by Board-approved loan policies of the REs, complying with regulatory, statutory requirements, and loan agreement terms.
* RBI has advised banks to have Board approved loan policies and make credit decisions based on these.
* **RBI Initiatives for Stress Resolution:**
* RBI has implemented initiatives to improve recovery and resolve stress in banks.
* The Prudential Framework for Resolution of Stressed Assets under RBI Directions, 2025 provides a principle-based framework for early recognition and resolution of default.
* **Model Education Loan Scheme (MELS):**
* All Scheduled Commercial Banks (SCBs) have been advised by RBI to adopt MELS (last amended on March 21, 2024).
* MELS provides need-based education loans up to ₹7.50 lakhs without collateral or third-party guarantee.
* Eligibility for Central Sector Interest Subsidy Scheme (CSIS)/ Credit Guarantee Fund Scheme for Education Loan (CGFSEL) is required.
* **Collateral-Free Loans:**
* PSBs provide collateral-free loans beyond ₹7.50 lakhs on a case-to-case basis as per Board policies.
* RBI advised that banks must not mandatorily obtain collateral security for educational loans up to ₹4 lakh (RBI circular RPCD.SME&NFS.BC.No. 69/06.12.05 /2009-10 dated April 12, 2010)
* **PM Vidyalaxmi Scheme:**
* Launched on November 6, 2024, to enable loans to meritorious students.
* Aims to ensure financial constraints do not hinder quality higher education.
* Facilitates collateral-free, guarantor-free education loans through a simple, transparent application process for students in top Quality Higher Educational Institutions (QHEIs).
**Impact Analysis**
**Public Sector Banks (PSBs)**
* **Impact:** PSBs are required to align their education loan policies with RBI's guidelines and the Model Education Loan Scheme (MELS). They have the flexibility to extend collateral-free loans beyond ₹7.50 lakhs based on their Board-approved policies.
* **Action Required:** PSBs need to ensure their loan policies are updated and in compliance with the RBI's directives and MELS, and also need to adhere to Board approved policies for loans beyond ₹7.50 lakhs.
**Students seeking education loans**
* **Impact:** Meritorious students, especially those attending top Quality Higher Educational Institutions (QHEIs), can benefit from collateral-free and guarantor-free education loans through the PM Vidyalaxmi scheme. All students can benefit from the Model Education Loan Scheme.
* **Action Required:** Students should apply for education loans through banks and utilize the PM Vidyalaxmi scheme for access to collateral-free loans, if eligible.
**Reserve Bank of India (RBI)**
* **Impact:** The RBI plays a crucial role in regulating and supervising the education loan policies of banks. Its initiatives and circulars guide the lending practices of PSBs and SCBs.
* **Action Required:** Continue monitoring the asset quality of education loans and ensure banks adhere to the regulatory guidelines.
**Scheduled Commercial Banks (SCBs)**
* **Impact:** SCBs have been advised to adopt the Model Education Loan Scheme (MELS), which requires them to offer need-based education loans without collateral security or third-party guarantee for loans up to ₹7.50 lakhs.
* **Action Required:** SCBs must adopt MELS and align their education loan policies with its provisions. They also need to determine eligibility for CSIS/CGFSEL for students seeking education loans.
Key Entities Referenced
Reserve Bank of India (RBI): The central bank of India, responsible for regulating banks and issuing relevant directions and circulars regarding education loans.
Public Sector Banks (PSBs): Banks that are extending collateral-free education loans.
Model Education Loan Scheme (MELS): A scheme adopted by banks for need-based education loans without collateral security.
Central Sector Interest Subsidy Scheme (CSIS)/ Credit Guarantee Fund Scheme for Education Loan (CGFSEL): Schemes related to interest subsidy or credit guarantee for education loans.
PM Vidyalaxmi scheme: A scheme facilitating education loans to meritorious students through banks.
Ministry of Finance
Gross NPAs in Outstanding Education Loans of
PSBs Fall from 7% to 2%, Reflecting Improved
Asset Quality
Public Sector Banks extend Collateral-Free Education Loans
beyond 7.50 lakhs on case to case basis as per their Board
approved policies
प्रव तथ: 15 DEC 2025 6:58PM by PIB Delhi
As informed by Reserve Bank of India (RBI), in terms of outstanding education loans, the Gross Non-
Performing Assets (NPA) of Public Sector Banks (PSBs) reduced from 7% in FY 2020-21 to 2% in FY
2024-25, thereby showing the significant improvement in asset quality of education loans over the years.
The state-wise information in this regard is not maintained by the RBI.
Credit related matters of regulated entities (REs) are largely deregulated and the same are governed by the
Board approved loan policies of the REs framed under the ambit of relevant regulatory and statutory
requirements and terms and conditions of the loan agreement between the borrower and the RE. RBI has
advised the banks to put in place a Board approved loan policy and they shall take credit related decisions
as per the said policy, subject to the guiding principles of regulations.
Further, RBI has taken several initiatives to improve recovery and to resolve incipient /established stress
in banks including issuance of the Prudential Framework for Resolution of Stressed Assets under RBI
(Commercial Banks – Resolution of Stressed Assets) Directions, 2025 which is a principle-based
framework and provides for early recognition and resolution of default in a time bound manner.
All Scheduled Commercial Banks (SCBs) have been advised by Reserve Bank of India (RBI) to adopt
Model Education Loan Scheme (MELS), (last amended on 21.3.2024). The scheme inter alia provides
need-based education loan and no collateral security or third-party guarantee is required for loans amount
up to ₹ 7.50 lakhs, provided they are eligible for Central Sector Interest Subsidy Scheme (CSIS)/ Credit
Guarantee Fund Scheme for Education Loan (CGFSEL).
Public Sector Banks (PSBs) also provide collateral free loans beyond ₹ 7.50 lakhs, on case to case basis as
per their Board approved policies.
Further, RBI vide circular RPCD.SME&NFS.BC.No. 69/06.12.05 /2009-10 dated April 12, 2010, on
Collateral Free Loans - Educational Loan Scheme, has advised that banks must not, mandatorily, obtain
collateral security in the case of educational loans upto ₹ 4 lakh.
Moreover, PM Vidyalaxmi scheme has been launched on 06.11.2024, which enables loans through banks
to meritorious students so that financial constraints do not prevent any youth of India from pursuing
quality higher education. The scheme facilitates and enables education loans to meritorious students whoget admission in the top Quality Higher Educational Institutions (QHEIs) in the country and enables
meritorious students of these QHEIs to take collateral free, guarantor free education loans through a
simple, transparent, student-friendly application process.
This information was given by the Minister of State in the Ministry of Finance Shri Pankaj Chaudhary in a
written reply to a question in Lok Sabha today.
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