NBFCs’ education loan AUM expected to grow 35-40% in FY23, says Crisil

New Delhi: Non-banking financial companies' (NBFCs) education loan assets under management (AUM) are likely to grow 35-40% to ₹35,000 crore in the current fiscal, driven by specialized business models and a rise in students studying abroad, according to rating agency Crisil on Thursday.

Although education loans by NBFCs are expected to increase at a more moderate pace compared to the previous fiscal year, the growth remains healthy. Crisil estimates that the AUM for education loans nearly doubled to over ₹25,000 crore in FY23 from ₹13,000 crore in FY22.

Despite rapid growth, asset quality in the segment has remained strong, with low levels of non-performing assets (NPAs) due to protective structural features of these loans. 

Krishnan Sitaraman, senior director and deputy chief ratings officer at Crisil Ratings, said that swift loan disbursement, adequate risk classification of foreign universities, and structured loan repayment terms have enabled NBFCs to optimally serve the financing needs of students studying abroad.

In FY21, growth stagnated as the Covid-19 pandemic halted international travel, with the number of students traveling abroad dropping to 260,000, a decline of over 50% compared to the previous year. As the pandemic's impact lessened, this number increased to 450,000 and 750,000 for FY22 and FY23, respectively.

Crisil noted that over 90% of education loans are for studying abroad, with US academic courses accounting for over half of these NBFCs' education loan AUM, followed by Canada at 20-25%.

Although the number of Indian students studying abroad is expected to keep rising, growth rates may moderate due to a higher base effect, subdued global economic growth, and related layoffs, particularly in the technology sector.

Crisil added that education loan delinquencies have remained low for NBFCs so far, with built-in structural features of these loans playing a significant role. 

Ajit Velonie, senior director at Crisil Ratings, explained that compulsory co-borrowers, a focus on STEM courses with better employability prospects, and structured repayment terms have supported the asset quality of education loan NBFCs. As a result, gross NPA stayed below 0.5% even during the pandemic.