Patna: The state government has decided to set up a financial corporation to disburse loans for Student's Credit Card (SCC) scheme in view of banks' reluctance to do so.

Deputy chief minister Sushil Kumar Modi announced this while presenting the state annual budget. This year too the budget has given highest priority to education, allocating Rs 32,125.64 crore against Rs 25,251.39 crore in 2017-18.

The finance corporation will start functioning from April. For smooth functioning, the government has decided to set up 141 news posts in the finance corporation. Apart from setting up a separate finance corporation, the banks will continue disbursing loans under SCC.

Sources said the state government decided to set up a separate corporation for disbursing loans under the students' credit card scheme because of the bank's poor response in disbursing loans.

Chief minister Nitish Kumar and deputy chief minister Sushil Kumar Modi have on several occasions asked banks to provide loans to students, but the tedious process leads to poor disbursal of loan.

At the 60th meeting of the state level bankers' committee (SLBC) held in Patna last year, the chief minister had asked bankers not to harass pupils seeking loans under the SCC.

An undergraduate is provided a Rs 4 lakh loan under SCC to pursue higher education.

The Bihar government launched the SCC on October 3, 2016. But according to education department sources, due to banks' reluctance only 14,500 of over 20,000 applicants have been sanctioned loans.

"A student who is applying for loan under SCC has to go through various processes, submitting education documents, income tax return of their parents and more," said a senior education department official on the condition of anonymity. "Apart from the banks' lengthy process, the other reason behind poor response to SCC is the bank interest rate." SBI, which signed the MoU, provides education loan to students at the annual interest rate of 11.20 per cent.

Similarly, Indian Overseas Bank charges 11.25 per cent interest annually on education loan, not much different from the rate at which banks provide loans to general customers.

"The banks are demanding various papers for giving loan," said Gaurav Anand, a first-year undergraduate student at AN College. "Also, the interest rate is not much different than what banks provide to normal customers. The only advantage under SCC is that students get one-year moratorium to pay the loan after completion of studies."

Economists and academicians feel setting up separate finance corporations is not going to help. Patna University retired economics teacher N.K. Choudhary said: "Rather than setting up a separate finance corporation, the government should have strengthened public sector educational institutions providing low cost or free education to students. Students Credit Card and finance corporation is a step in promoting market economy."