India’s NBFCs are set to see their education loan AUM exceed ₹60,000 crore this fiscal year, driven by rising demand for overseas education.
A CRISIL Ratings report shows NBFCs’ education loan AUM reached around ₹43,000 crore as of March 31, 2024, after growth rates of over 80% in fiscal 2023 and 70% in fiscal 2024.
Education loans, especially for students studying abroad, are among the fastest-growing segments for NBFCs. This growth is expected to continue with a projected 40-45% increase in AUM this fiscal, fueled by more Indian students studying overseas and rising higher education costs.
NBFCs have shown resilience in asset quality, with CRISIL analysis indicating stability despite country-specific challenges.
As of March 31, 2024, the 90+ days past due (dpd) metric for NBFC education loans was just 0.2%, much lower than the gross NPA ratios of 2.0% for private banks and 3.9% for public sector banks. This superior performance is due to robust credit underwriting and a deep understanding of the education loan market.
Ajit Velonie, Senior Director at CRISIL Ratings, noted significant growth potential in the NBFC education loan sector. Despite financing only a tenth of the 13.4 lakh Indian students abroad, rising tuition fees, inflation, and living expenses provide favorable conditions for expansion.
NBFCs have excelled in the education loan market through strong micro-market intelligence and faster turnaround times. Their specialized business model, which includes a deep understanding of relevant geographies, courses, and student profiles, allows for tailored product offerings and better risk-adjusted pricing.
NBFCs have also shown agility in addressing country-specific concerns. For example, they reduced exposure to Indian students in Canada from around 21% two years ago to about 15% as of March 31, 2024, in response to regulatory changes.
CRISIL’s report highlights that most NBFC education loans are currently under moratorium, with around 90% of the portfolio yet to exit this phase. Early signs of prepayment and foreclosure trends are promising, with 35-45% of loans prepaid during the initial moratorium period and most loans repaid within 5-7 years, despite longer contractual tenures.