The Business Bytes
Mumbai, September 03, 2024 (TBB Bureau): Education loans, particularly those aimed at funding overseas studies, are emerging as one of the fastest-growing segments for non-banking financial companies (NBFCs) in India, driven by increasing demand for higher education. According to CRISIL Ratings, NBFCs’ education loan assets under management (AUM) are projected to grow by 40-45 per cent this fiscal, crossing the Rs 60,000 crore mark, up from Rs 43,000 crore as of March 31, 2024. This follows robust growth of over 80 per cent in fiscal 2023 and 70 per cent in fiscal 2024.
Ajit Velonie, Senior Director at CRISIL Ratings, highlighted that the number of Indian students studying abroad has approximately doubled in the past five years, reaching around 13.4 lakh as of last fiscal. “Only a tenth are being funded by these NBFCs, and even including education loans by banks, the financed quantum is not much higher,” Velonie noted. This suggests that a significant portion of overseas education is being funded through alternative means such as informal financing, self-funding, or other types of loans. This leaves considerable growth potential for education loan providers, especially as rising tuition fees, inflation, and living expenses contribute to higher loan ticket sizes.
NBFCs have successfully carved out a niche in the education loan space by leveraging strong micro-market intelligence and quick turnaround times. Their specialized business models, which are built on a deep understanding of relevant geographies, courses, universities, and the profiles of students and their families, allow for customized products, better employability assessment, and risk-adjusted pricing. As a result, the portfolio performance of these NBFCs has been resilient, underpinned by robust credit underwriting. The 90+ days’ past due (dpd) rate for education loans was just 0.2 per cent as of March 31, 2024, significantly lower than the gross non-performing asset rates of 2 per cent and 3.9 per cent for private and public sector banks, respectively.
Malvika Bhotika, Director at CRISIL Ratings, pointed out that prepayment and foreclosure rates are high, with 35-45 per cent of loans being prepaid during the initial moratorium period, typically three years. “Most loans are repaid in 5-7 years, even when the contractual tenure is longer,” she said. However, due to recent high growth, around 90 per cent of the current portfolio is still under moratorium, and the long-term asset quality performance remains to be seen.
NBFCs have also shown agility in navigating country-specific concerns. While the United States, the United Kingdom, and Canada remain the preferred destinations for Indian students, NBFCs have strategically reduced their exposure to Indian students studying in Canada to 15 per cent as of March 31, 2024, from around 21 per cent two years ago. This move is in response to changes in Canada’s regulatory and operating environment.
Looking ahead, NBFCs’ credit risk profile and growth trajectory are expected to remain robust, supported by healthy capitalization and sustained investor interest. However, their ability to maintain asset quality as a larger portion of their portfolio exits the moratorium, amid evolving global macroeconomic conditions, will be closely monitored.
As the demand for overseas education continues to rise, NBFCs are well-positioned to capitalize on this growth opportunity while navigating the challenges of asset quality and regulatory environments.
