Indian banks are finding it hard to recover their money from defaulting student borrowers as persistent sluggishness in the economy has dented their high hopes of getting a good job with fat salary after passing out of college.

An increasing number of students are defaulting on their educational loans. Some lenders are suffering NPAs (non performing assets)or bad loans of up to 7-8 per cent of the total outstanding, considerably up from around 5 per cent a year ago.

T. M. Bhasin, Chairman & Managing Director of Indian Bank, said that the gross NPAs in educational loans had been rising for the last 2-3 quarters.

Soundara Kumar, a deputy managing director at State Bank of India (SBI), said, "It is like putting toothpaste back into the tube. Giving a loan is the relatively easy part, but recovery is far more difficult. You have to act before the loan fully goes bad."

Portfolio of Indian Bank depicts that 5 per cent of its educational loans are bad loans, while the figure for Indian Overseas Bank stands at nearly 8 per cent.

The tackle the escalating problem, almost all banks have strengthened their recovery processes. State-run SBI has formed three committees to monitor stressed assets. It is also planning to install computer software to spot early signs of slippages.

The Congress-led UPA government has set aside Rs 11,200 crore for capital infusion into state-run banks for the current financial year. But, as per Moody's Investors Service, this amount is less than half of what Indian banks really require to meet the capital norms under the global Basel III rules.