With the onset of a new academic session, the demand for education loans is set to grow with rising admission and course fees for higher studies. While banks are showing quarter on quarter rise in their education loan books, the bigger education loan providers are also saddled with bad loans.
For banks and specialised financial institutions, education loan is not a small business opportunity. With close to Rs 80,000 crore spent on higher education every year, about 14 to 15 per cent of the students pursuing graduate or post-graduate courses opt for such loans.
And it’s not just the usual engineering or MBA when it comes to opting for courses. Streams like sports management, acoustics & music technology and sports therapy are being increasingly looked at by youngsters eager to carve out a niche career for themselves.
The total education loan book of the entire banking system is around Rs 64,000 crore, which is just one per cent of the entire banking system loan book. While there has been a year on year and quarter on quarter growth in banks’ loan books, the education loan growth in the last financial year was lower as compared with FY14.
Anuradha Rao, head-personal banking, State Bank of India said, "We have 25 per cent market share in education loan and it’s growing. While here asset quality is a concern as job market right now is not able to provide jobs to all or they get jobs that don’t provide enough income to pay back the loan fully, government and banks need to work together for better work force creation in the country."
Specific education loan companies, promoted by financial majors — HDFC-promoted HDFC Credila and Deewan Housing Finance-promoted Avanse — have also come into the picture and are trying to compete by providing better services to students and parents.
Abhishek Bhattacharya, associate director - banks, India Ratings & Research, said, "Education loan growth has sort of cooled off with 6.2 per cent YoY growth in for the period April 2014 to April 2015 as compared with 9.7 per cent growth for the period April 2013 to April 2014."
"Public sector banks, which are major players, like SBI, Punjab National Bank, Union Bank, Bank of India have slowed down as in some cases NPAs have remained high, with NPA ratio as high as 8 per cent. Earlier, the banks had some subvention scheme from government," Bhattacharya said.
"Loan recovery is a challenge in case of education loan as it’s given to people with no work experience record and it’s difficult to enforce recovery process," Bhattacharya said.
Education loan as a part of total retail loan book also grew to 1.01 per cent in FY15 as compared with 1 per cent FY14.
The new private sector players in the education loan arena are optimistic about growth. HDFC Credila has disbursed a total of over Rs 2,300 crores of education loan. Ajay Bohora, co-founder & CEO of HDFC Credila Financial Services said, "The number of students pursuing higher education in India and overseas has been growing year on year despite uncertainties in the economy and the rupee depreciation against the dollar pushing the costs up by 20-30 per cent."
"HDFC Credila has noticed a growing preference towards unconventional courses like sports management, acoustics & music technology, sports therapy and sometimes courses as specific as cardio-respiratory physiotherapy in place of the popular engineering or traditional MBA programmes," Bohora says.
Avanse Financial Services, a subsidiary of home finance firm DHFL, in two years of its operation has given loans to over 2,000 students and its loan book portfolio is close to Rs 270 crore.
Neeraj Saxena, CEO, Avanse Financial Services said, "In India the education loan demand has been pretty good but for some recent trends. Loan growth is in right phase. It is a huge business opportunity with close to Rs 80,000 crore spent on higher education every year. About 14 to 15 per cent of the students pursuing graduate or post graduate courses opt for education loan."
"The education loan penetration is lower also because people have a perception that processes of approval of the education are extremely tedious. But education loans have the potential to become as popular as mortgage loan," Saxena said.