Why is It This Way?

I was discussing with a friend about the rate cuts applied by various banks this year as a result of the downturn and as I am a student and taken a loan i.e. education loan of course I was bound to raise a point. The point is simple and whoever has taken an education loan will know it.

Why the banks have not reduced interest rates of any education loans? Despite of RBI cutting CRR, REPOs and SLRs other PSBs or co-operative banks, as the case may be, have not reduced a single basis point on education loan (except IDBI, who has cut it by 50 bps). Have you thought of my student friends that why the banks have reduced the home loan rates to 9.25% (SB group) from 12.25% last year and not the education loan rates?

I must confess that there are two important reasons behind it (according to my knowledge). The first one is the demand for education loan. The simple economic law says that whenever there is rise in demand the price tends to increase now or in near future. According to ET dated 3^rd March 2009, the education loans disbursed in 2008 were whopping 600% more than the same in 2004. Then why the hell (sorry) should the bank cut rates on such a revenue generating item. Unless until the demand for education loans spurs the banks won’t learn a lesson and people like us will suffer continuously. But why the demand is increasing day-by-day with such a great intensity? The cost of education, that’s the reason. People like us who want to learn but cannot afford the cost of education (which is also increasing as the year passes) have to beg to the bank for a loan. India’s student population is going upward tremendously and this has resulted in the increasing demand for loans.

The second reason, which was suggested by my genius friend, is that the home loan category is the main category under loan segment and also the big chunk of income comes through it in credit section. Home loan is the most preferable item seen from both the parties i.e. the bank or lending institute and the borrower. As I said earlier India’s student population is rising tremendously and so are the number of parents and they need some place to stay near to (or away from) their parents. In this exercise they are either taking houses on rent or purchase them straight away. But to purchase the stylish houses they have to empty their (and their loved ones’) pockets and to pay the remaining (if any) they borrow from banks. Today (or I must say before recession) most of the buyers depend upon borrowed money rather than their own and hence, many people end up taking loan of different figures. But after recession, the demand for houses has declined such that no one is trying to take a look towards a new built house. The demand has spurred and builders have ended up giving discounts (like flat pe flat free, which happened in Thane) and to bail out these builders the banks have decided to cut interest rates on housing loans and give (or try to give) a boost to Indian Realty.

But my question is why only the rates on housing loan have been cut and not on the education loan? Please give me some reasons.

Waiting for your answers.