Asset quality continues to be resilient despite country-specific concerns
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.
After robust growth of over 80% and 70% in fiscals 2023 and 2024, respectively, NBFCs' education loan assets under management (AUM) rose to ~Rs 43,000 crore as on March 31, 2024. Their AUM is expected to grow at a healthy clip of 40-45% to cross Rs 60,000 crore this fiscal (see chart in annexure).
On the asset quality front, metrics should remain stable despite country-specific concerns, a CRISIL Ratings analysis indicates.
Says Ajit Velonie, Senior Director, CRISIL Ratings, "The number of Indian students studying abroad is estimated to have doubled in the past five years to around 13.4 lakh1 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. 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.
The portfolio performance of these NBFCs have been resilient so far based on strong credit underwriting. Their 90+ days' past due (dpd), for education loans, was ~0.2% as on March 31, 2024, whereas for private and public sector banks, gross non-performing assets were 2.0% and 3.9%, respectively2. Peak quarterly delinquency on the vintage pool of 90+ dpd for NBFCs was also below 1%.
Says Malvika Bhotika, Director, CRISIL Ratings, "Additionally, prepayment and foreclosure rates are high - 35-45% 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% of the portfolio is currently under moratorium. So, asset quality performance over the longer term remains to be seen". |
