MUMBAI: Education loans, primarily those to fund overseas courses, continue to be among the fastest-growing segments for non-banking financial companies (NBFCs) because of the rising demand for higher education. They are on course to top the Rs 60,000 crore this fiscal from Rs 43,000 crore in the previous fiscal.
After a robust growth of over 80 percent and 70 percent in fiscals 2023 and 2024, respectively, the education loan assets of NBFCs rose to Rs 43,000 crore as of March 2024. Their loan book is expected to grow at a healthy clip of 40-45 percent to cross Rs 60,000 crore this fiscal, Crisil Ratings said in a note Friday.
On the asset quality front, metrics should remain stable despite country-specific concerns, the report said.
According to Ajit Velonie, a senior director with the agency, the number of students studying abroad is estimated to have doubled in the past five years to around 13.4 lakh last fiscal. Only a tenth are being funded by these NBFCs.
A large portion of overseas education is funded through informal financing, self-funding or other forms of loans. That shows education loan companies have significant headroom for growth. But rising ticket sizes because of ascending tuition fees, inflation and living expenses are also tailwinds, he said without quantifying the numbers.
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.
The portfolio performance of these NBFCs have been resilient so far based on strong credit underwriting. Their 90+ days past dues for education loans was just 0.2 percent as of March 2024, whereas for private and public sector banks, gross non-performing assets were 2 percent and 3.9 percent, respectively. Peak quarterly delinquency on the vintage pool of 90+ days past dues for NBFCs was also below 1 percent.
According to Malvika Bhotika, a director with the agency, additionally, prepayment and foreclosure rates are high as 35-45 percent of these loans get prepaid during the initial moratorium period of three years. And most of the loans are repaid in five to seven years even where the contractual tenure is higher.
However, given the recent high growth, around 90 percent of the portfolio is currently under moratorium. So, asset quality performance over the longer term remains to be seen, she said.