Education Loans for Studying Abroad to Grow Rapidly, Says Crisil Ratings
Education loans, especially for courses overseas, are set to be one of the fastest-growing segments for non-banking financial companies (NBFCs) due to the increasing demand for higher education. Crisil Ratings predicts that their assets under management (AUM) will grow by 40-45% to exceed Rs 60,000 crore this fiscal year.
As of March 31, 2024, NBFCs’ education loan AUM rose to Rs 43,000 crore, following robust growth in previous years. Despite country-specific concerns, asset quality metrics are expected to remain stable.
Ajit Velonie, Senior Director at Crisil Ratings, noted that the number of Indian students studying abroad has doubled in the past five years to around 13.4 lakh. However, only a small portion of these students are funded by NBFCs, indicating significant growth potential. Rising tuition fees, inflation, and living expenses are also contributing factors.
NBFCs have carved out a niche in the education loan space through strong micro-market intelligence and fast turnaround times. Their specialized business model allows for product customization, better employability assessment, and risk-adjusted pricing.
Malvika Bhotika, Director at Crisil Ratings, observed that prepayment and foreclosure rates are high, with 35-45% of loans prepaid during the initial moratorium period. Most loans are repaid within 5-7 years, even if the contractual tenure is longer. However, 90% of the portfolio is currently under moratorium, so long-term asset quality performance remains to be seen.
NBFCs have shown agility in addressing country-specific concerns, such as reducing exposure to Indian students in Canada due to regulatory changes. Healthy capitalisation and investor interest have supported their growth and credit risk profile. Their ability to maintain asset quality amid a changing global environment will be closely monitored.
Doubts Revealed
Crisil Ratings -: Crisil Ratings is a company that gives opinions about the financial health of other companies and industries. They help people understand how safe it is to invest in different places.
NBFCs -: NBFCs stands for Non-Banking Financial Companies. These are companies that provide financial services like loans and investments but are not banks.
AUM -: AUM stands for Assets Under Management. It means the total value of money that a financial company manages for its clients.
Fiscal Year -: A fiscal year is a one-year period that companies and governments use for financial reporting and budgeting. In India, it usually starts on April 1 and ends on March 31 of the next year.
Asset Quality -: Asset quality refers to how safe and reliable the loans and investments of a financial company are. Good asset quality means the company is likely to get its money back.
Prepayment Rates -: Prepayment rates refer to how often people pay back their loans before the due date. High prepayment rates mean many people are paying off their loans early.
Credit Underwriting -: Credit underwriting is the process of evaluating if a person or company is likely to repay a loan. It involves checking their financial history and current situation.
