India (Commonwealth Union)_ In the wake of escalating demand for higher education abroad, India’s non-banking financial companies (NBFCs) are set to see their education loan assets under management (AUM) exceed ₹60,000 crore this fiscal year. This projection reflects a robust growth trajectory in the sector, as revealed by a recent report from CRISIL Ratings. Accordingly, as of March 31, 2024, the AUM for NBFCs in the education loan sector stood at approximately ₹ 43,000 crore. This significant figure follows a remarkable growth rate of over 80% in fiscal 2023 and 70% in fiscal 2024.
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Additionally, with an anticipated increase of 40-45% in AUM this fiscal, the sector is poised for continued expansion, driven largely by the growing number of Indian students pursuing studies abroad and the rising costs associated with higher education. Furthermore, the rising costs of overseas education have created a burgeoning market for NBFCs, which are emerging as a crucial player in financing international studies. Further, the number of Indian students studying overseas has doubled in the past five years, reaching approximately 13.4 lakh by the end of the last fiscal year. This increase underscores a substantial shift towards alternative financing options, including education loans from NBFCs, as traditional avenues of funding may not suffice.
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NBFCs have become instrumental in supporting this trend, particularly as they cater to a segment of the market that is expanding rapidly. Their role in financing education abroad has become increasingly significant, with education loans for overseas studies emerging as one of their fastest-growing segments. This growth is propelled by several factors, including the escalating tuition fees, inflation, and living expenses associated with studying in foreign countries. Despite this rapid expansion, the asset quality of NBFCs has remained notably resilient. According to CRISIL’s analysis, the 90+ days past due (dpd) ratio for NBFC education loans was just 0.2% as of March 31, 2024.
This performance is markedly better compared to the gross non-performing asset (NPA) ratios of 2.0% for private banks and 3.9% for public sector banks. This superior performance can be attributed to rigorous credit underwriting processes and a sophisticated understanding of the education loan market. Ajit Velonie, Senior Director at CRISIL Ratings, emphasized that there is substantial room for growth within the NBFC education loan sector. Notably, only a fraction of the 13.4 lakh Indian students abroad is currently financed by NBFCs. The sector’s expansion is expected to benefit from the rising tuition fees, inflationary pressures, and other related expenses, which provide favorable conditions for further growth.
NBFCs have also distinguished themselves through their specialized business models, characterized by strong micro-market intelligence and efficient turnaround times. Their deep understanding of various geographies, courses, and student profiles enables them to offer tailored products and adopt better risk-adjusted pricing strategies. This agility is crucial in navigating the diverse challenges of the education loan market. Furthermore, NBFCs have demonstrated adaptability in response to regulatory changes and market dynamics. For example, they have strategically adjusted their exposure to Indian students studying in Canada, reducing their share from approximately 21% two years ago to around 15% as of March 31, 2024. This strategic shift highlights their ability to manage country-specific concerns effectively.
CRISIL’s report also states that a significant portion of NBFC education loans remains under moratorium, with around 90% of the portfolio yet to exit this phase. However, early indicators of prepayment and foreclosure trends are encouraging. Approximately 35-45% of loans have been prepaid during the initial moratorium period, with most loans repaid within 5-7 years, despite their longer contractual tenures. Furthermore, the outlook for NBFCs in the education loan sector remains highly positive, with a projected AUM growth to over ₹60,000 crore this fiscal year. This growth is driven by increasing demand for overseas education and the sector’s ability to navigate market challenges effectively.
