Education Loans to Remain Fastest-Growing Segment for NBFCs: Crisil

Education loans, primarily those to fund courses overseas, will continue to be among the fastest-growing segments for non-banking financial companies (NBFCs) because of rising demand for higher education, said Crisil Ratings.

Their assets under management (AUM) is expected to grow at a healthy clip of 40-45 per cent to cross Rs 60,000 crore this fiscal, as per the rating agency.

By definition, the assets under management (AUM) is the market value of the investments managed by the entities.

After robust growth of over 80 per cent and 70 per cent in fiscals 2023 and 2024, respectively, NBFCs’ education loan assets under management (AUM) rose to Rs 43,000 crore as on March 31, 2024.

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On the asset quality front, metrics should remain stable despite country-specific concerns, a CRISIL Ratings analysis indicates, the report added.

“The number of Indian students studying abroad is estimated to have doubled in the past five years to 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.

What that indicates is that a large portion of overseas education is being funded through alternative means — informal financing, self-funding, or perhaps other forms of loans,” said Ajit Velonie, Senior Director, CRISIL Ratings.

“That shows education loan companies have significant headroom for growth.

Rising ticket sizes because of ascending tuition fees, inflation and living expenses are also tailwinds. Strong micro-market intelligence and fast turnaround times have allowed NBFCs to carve out a niche in the education loans space. Their specialised business model–backed by strong understanding of relevant geographies, courses, universities, tenures and profiles of students and their families–affords customisation of products, enabling better assessment of employability and risk-adjusted pricing,” he added.

As observed in the report, the portfolio performance of these NBFCs have been resilient so far based on strong credit underwriting. Their 90 plus days’ past due (dpd), for education loans, was 0.2 per cent as on March 31, 2024, whereas for private and public sector banks, gross non-performing assets were 2.0 per cent and 3.9 per cent, respectively. Peak quarterly delinquency on the vintage pool of 90+ dpd for NBFCs was also below 1 per cent.

Observing the trends, Malvika Bhotika, Director, CRISIL Ratings, said, “Additionally, prepayment and foreclosure rates are high –35-45 per cent of the loans get prepaid during the initial moratorium period of typically 3 years. And most of the loans are repaid in 5-7 years even where the contractual tenure is higher. However, given the recent high growth, around 90 per cent of the portfolio is currently under moratorium. So, asset quality performance over the longer term remains to be seen.”

Nevertheless, these NBFCs have shown agility in navigating country-specific concerns. For instance, while the US, the UK and Canada are preferred destinations, NBFCs have reduced exposure to Indian students studying in Canada to 15 per cent as on March 31, 2024, from 21 per cent two years ago. This has been in response to changes in the regulatory and operating environment there.

Healthy capitalisation supported by investor interest has backed the credit risk profile and growth of these NBFCs. Their ability to continue growing while maintaining asset quality even as a higher portion of the portfolio comes out of moratorium amid the evolving global macro environment will bear watching, the report added.

(INPUT FROM ANI)

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