NBFC education loans to grow around 40% to Rs 35,000 crore in FY24: CRISIL

The education loans by NBFCs would grow moderately but still be healthy as compared with the previous fiscal year, CRISIL said

Education loan assets under management (AUM) of non-banking financial companies (NBFCs) are projected to grow by 35-40 per cent to around Rs 35,000 crore in the financial year 2023–24, riding on specialised business models and an increase in the number of students travelling abroad, CRISIL Ratings said in a press release on Thursday.

The education loans by NBFCs would grow moderately but still be healthy as compared with the previous fiscal year, the agency said.

According to CRISIL, in FY23 the education loan AUM is estimated to have nearly doubled to over Rs 25,000 crore from around Rs 13,000 crore in FY22.

Despite the high growth, asset quality in the education loan segment continues to be benign due to a low level of non-performing assets (NPAs) on account of the protective structural features underpinning these loans, the rating agency said.

"Speedy loan disbursal, supported by the adequate risk classification of foreign universities — both institute-wise and course-wise—and structured loan repayment terms, have helped these NBFCs serve the financing requirements of students travelling abroad in an optimal manner," said Krishnan Sitaraman, senior director and deputy chief ratings officer at CRISIL.

The AUM growth in FY21 was flat owing to the Covid-19 pandemic, which stalled international travel. In the same year, the number of students travelling abroad for higher studies had dropped by over 50 per cent YoY, to 260,000.

However, the number rose to 450,000 and 750,000 in FY22 and FY23, respectively.

The agency said that more than 90 per cent of the education loans availed are for international studies, while India-based courses account for the rest.

It added that students pursuing academic courses in the US account for more than half of the education loan AUM of NBFCs, followed by Canada at 20-25 per cent.

While the number of Indian students travelling abroad for higher studies is expected to continue to rise, growth rates may moderate due to the higher base effect and subdued global economic growth landscape and the attendant layoffs, particularly in the technology sector, CRISIL said in the release.

The agency said that education loan delinquencies have remained low for NBFCs so far, with the built-in structural features of these loans being a key contributory factor.

"Inherent structural features of the business model include a compulsory co-borrower (a parent in most cases), a focus on science, technology, engineering, and mathematics (STEM) courses that have a better track record of employability, and structured repayment terms, with loans typically moving to full equated monthly instalments (EMI) towards the end of the course tenure and coinciding with job placements. These have supported the asset quality of education loan NBFCs so far, with the gross NPA remaining below 0.5 per cent during the pandemic," said Ajit Velonie, senior director at CRISIL Ratings.

The collection efficiencies for these portfolios remained stable even during fiscal 2023 despite job losses, the agency said, adding that the prepayment rate for education loans is high within 4-6 years of loan disbursement on average, which comes from the salaries of the students after they get employed.