Group 8 [Blockchain Integration for Educational Loans]
[Ainesh Gupta, Ashima Nayyar, Gunesh Wagh, Vikas Gupta, Hardik Harsora, Renil Shah, Ronakk Moondra]
Education loan provides the necessary financing required to harness and empower the human capital in a country where government assistance, both at the national and sub-national levels is focused on providing quality education. The growing needs of a young nation like India in the area of higher education are increasingly being met by the private sector, although public sector institutions continue to play a significant role. In India, just 3.3% of all retail loans held by commercial banks are for education purpose, yet even this small proportion has a big impact on creating the skills needed to increase an economy's output and efficiency. One of the issues faced by the prospect educational loan borrower is to choose the bank they wish to avail an education loan from. With presence of total 86 banks in India (Public, Private and Regional Rural) and each bank having separate clause for sanctioning educational loan with rate of interest varying from as low as 6.75% up to 14% (without collateral), it becomes increasingly difficult to choose the banks to avail an educational loan. Students also complain that different branches of the same bank also tend to have different interest rates which further complicates the entire loan process.
One of the issues faced by the prospect educational loan borrower is to choose the bank they wish to avail an education loan from. With presence of total 86 banks in India (Public, Private and Regional Rural) and each bank having separate clause for sanctioning educational loan with rate of interest varying from as low as 6.75% up to 14% (without collateral), it becomes increasingly difficult to choose the banks to avail an educational loan. Students also complain that different branches of the same bank also tend to have different interest rates which further complicates the entire loan process. There has also been sharp increase in non-performing assets (NPA) in recent years in various commercial banks. Therefore, education loan is a reason for concern as it might obstruct the country's efforts to increase bank financing for higher education. Total loans outstanding by the banks to the education sector stood at Rs 87,456 crore as of 31st December 2022. The gross bad loan ratio of education book for PSBs was higher at 8.10% as of 31st December 2022, that of private banks was substantially lower at 6.8%. Most of the defaults were contributed by the low ticket size loans sanctioned by the banks (loan value<7.5 lacs) and therefore banks have reduced their exposure to the domestic education sector post pandemic as bad loans increased owing to the inability of borrowers to pay back.
In order to tackle the above mentioned issues i.e., choosing the right bank to avail an educational loan keeping interest rates in mind and reducing the overall educational loan NPAs in India, we believe there is a need for a robust architecture that would provide a single source of truth to the borrowers and make the overall loan sanctioning process more transparent. Also, the usual window offered by various education institutions in India to pay the fees ranges from 10-30 days. It becomes quite tedious for the borrower to select the best bank to avail an education loan. Borrower must gather all the necessary documents for sanctioning education loan. Since India is on the path of Digitalization, we believe that the student education domain should be completely digitalized where banks could directly have access to the documents pertaining to the past education records of the borrower so that the paper work involved in the process of disbursing education loan is reduced. Blockchain technology has a good application prospect in lending and the architecture can be integrated across various platforms to offer consent based data in a secure manner that is transparent and immutable. Also, Blockchain architecture is already being used for various other banking operations like dig we would be able to tackle both the issues thereby making the entire educational loan setup transparent to prospect borrowers.
The product that we aim to develop is unique and our aim is provide a single stop solution to make the education loan process more efficient and transparent by making use of Blockchain Network. The three major issues that we plan to target are:
- A digital blockchain ledger that would provide information pertaining to the education loan interest rates offered by all the banks in India.
- Education Loan NPA reporting by all the banks to continuously monitor the health of Indian banks.
- Availability of past education records of the borrower on the blockchain network via integration with Aadhaar number to reduce the paper work and frauds pertaining to education loan disbursements.
The proposed solution would bring many intermediaries involved in the processing of educational loan i.e., bank, borrower, education institutions, RBI, Govt of India under one umbrella. The transparency and ease thus generated post implantation of this blockchain network would not only benefit the borrowers and the financial intermediaries but would also lead to an increase in the healthy competition among banks. All the banks would thrive to keep the interest rates of education loan as low as possible in order to be competitive in the market and at the same time they would optimise their own credit appraisal process so that NPA figures are kept in check in order to avoid any scrutiny. The involvement of education institutes to this network would help banks retrieve tamper-proof documents and thus reduces the overall TAT to process the loan. This would lead to the development of a robust All-in-One Education Loan System that would be beneficial to all the Stakeholders and increase the overall transparency.