Education loan AUM of NBFCs to top Rs 60,000 crore this fiscal

According to RBI data, education loan outstanding of banks was Rs 123,066 crore as of July 2024.

The number of Indian students studying abroad is estimated to have doubled in the past five years to around 13.4 lakh 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,” Crisil said.

“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,” said Ajit Velonie, Senior Director, CRISIL Ratings.

It said 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,” said a Crisil report.

The portfolio performance of these NBFCs have been resilient so far based on strong credit underwriting. “Their 90 plus days’ past due (dpd), for education loans was 0.2 per cent as on March 31, 2024, whereas for private and public sector banks, gross non-performing assets were 2.0 per cent and 3.9 per cent, respectively. Peak quarterly delinquency on the vintage pool of 90 plus dpd for NBFCs was also below 1 per cent,” it said.

“Additionally, prepayment and foreclosure rates are high — 35-45 per cent 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,” Crisil said. However, given the recent high growth, around 90 per cent of the portfolio is currently under moratorium. So, asset quality performance over the longer term remains to be seen, it said.