Dwindling admissions and the subsequent fall in cash inflow through fees has not just pulled down the creditworthiness of education institutes but also made banks more wary of lending to these.
Banks say, given this situation, they are not increasing their exposure to education institutions. For instance, a senior official from Indian Overseas Bank said: “With the problems evident, our bank is not growing loan exposure to education institutions. Though our educational loan portfolio is limited, we are exercising caution.”
In the past five months, credit rating agency CRISIL has downgraded a good number of universities and institutes. It says weak admissions, ongoing capital expenditure plans and high administration costs has pulled down their creditworthiness.
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At Odisha-based Siksha O Anusandhan University (SOA), weak liquidity has hit its ability in servicing debt. “SOA also has a limited track record of alumni, which restricts growth in pay packages offered to students by recruiters, a large ongoing capital expenditure programme, and bunching of receipts,” CRISIL said in its rating statement.
SOA did not reply to an email query on how the university planned to address its weak liquidity position.
In a similar situation is Punjab-based Surya World Educational Research and Charitable Initiative (SWERCI), whose cash accruals are weak due to weak admissions in all its institutes. “SWERCI has a weak financial risk profile, marked by high gearing, as a result of its large, debt-funded capital expenditure programme. The trust is exposed to risks related to the regulated nature of the education industry, and it has a limited track record,” CRISIL said. SWERCI was set up in August 2008. The trust offers various graduate and post-graduate courses in engineering, management and computer applications.
Another case is Bangalore-based Abraham Memorial Educational Trust (AMET), where liquidity has weakened due to low cash accruals, mismatches between timing of cash inflows and outflows, capital expenditure and substantial term loan repayment obligations. “The downgrade reflects instances of delay by AMET in servicing its term loan. The delays are due to the trust’s weak liquidity,” said CRISIL.
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Runcie Ebenezer, secretary of AMET, in an emailed response, said the trust had taken care of the current financial crunch in the form of investments made by a private company. “The crunch was due to private debt availed at high interest rates,” Ebenezer said. Set up in 1998, AMET runs the Ebenezer International School in Bangalore which provides education from the kindergarten to class XII.
In the past year alone, a little over 200 education institutions across the country, including business schools and engineering colleges, have shut shop. They were unable to attract enough students, partly because of their location and also due to the economic slowdown which has dimmed job prospects and placements at institutes.
Andhra Bank, which lends to education institutions, says it has adopted a selective approach and is going slow on disbursing such loans. “The recovery of loans to educational institutes that have turned bad is tough. The bank already has one account which has become a non-performing asset. The sale of property or land given to an institute by the government is an tricky issue,” said B A Prabhakar, chairman and managing director.
Rohit Inamdar, senior vice-president, Icra Rating, said several institutes had seen rating downgrade. “The dwindling occupancies at engineering colleges led to a fall in fees, putting a strain on cash flows. Several institutes went in for large capital expenditure. Typically, they took fees in advance, and much of this amount went for capex, while the debt repayment bill mounted. They had to grapple with an asset-liability mismatch,” he said.