Digital currency wallets to be used for study loan subsidies

New Delhi: The government is working with banks to roll out a system to route and settle interest subsidies on education loans through digital currency wallets, bank executives aware of the move said.

A mechanism is being worked out to seamlessly integrate the Central Bank Digital Currency (CBDC)-based subsidy system with the Unified Portal for Education Loan, one of the executives told ET. The portal will streamline application submission, loan tracking, and subsidy claims, the person added.

Under the proposed mechanism, the interest subvention amount will be credited to the CBDC wallet of each student eligible for loan subsidy under the Pradhan Mantri Vidyalaxmi (PM-Vidyalaxmi) scheme upon receipt of claims from banks.

This can be redeemed at the time of loan repayment. The interest subvention amount shall get credited to the education loan account through direct benefit transfer (DBT), executives said.

The decision to use CBDC is expected to help lenders quickly settle interest subvention claims and curb fraud by identifying students availing benefits from multiple state or central schemes.

"The beneficiary students will be installing the wallet app, and this will also help in weeding out duplication of accounts since this will be linked with Aadhaar details," a second executive said.

In a meeting held last month, the finance ministry asked banks to prepare for submission of all types of education loan applications and processing of subsidy claims to the new portal and migrate from the existing Vidya Lakshmi portal (VLP) for students seeking educational loans.

Canara Bank is working with the Department of Higher Education to ensure that this fully rolls out within this month, said one of the executives quoted above.

In November last year, the cabinet approved the PM-Vidyalaxmi, through which a loan of up to ₹7.5 lakh will be provided a 75% credit guarantee by the government to support banks in expanding coverage of the education loan scheme. The interest rates charged on these educational loans are capped at the individual bank's externally benchmarked lending rate with an additional 50 basis points or 0.5%.

As per the scheme, students from families with an annual income of up to ₹8 lakh are eligible for a 3% interest subvention on loans up to ₹10 lakh for studying in 860 quality higher education institutions.

In February, the government informed the Lok Sabha that out of about 1.13 million credit guarantees, close to 50,800 have been observed as non-performing assets or NPAs, which is about 4.5% of the total credit guarantees, issued.