Home finance companies bet big on education loans

CHENNAI: Housing finance companies are not just targeting young professionals or double income couples with home loan offers.They have now expanded their reach to the growinguniverse of students aspiring for higher education. 

What's driving the foray is the boom in professional courses. As per industry estimates, around Rs 80,000 crore was spent on higher education by Indians last year, most of it in pursuit of professional degrees. Currently, there are more than 15-16 million students in colleges and technical institutes across the country and an additional quarter of a million on campuses overseas. The sector is growing at 20%-22% annually. 

In recent years, the loan business has also 'democratized' with takers from both upper as well as lower income groups. 

"A lot of talented students find it difficult to pursue their dreams of higher education because of the increasing cost of education. This is not only a sustainable business but also helps positively touch touch lives of students, their families and thereby improve the socio economic fabric of the country," said Renu Sud Karnad, managing director, HDFC. 

HDFC and Dewan Housing Finance were among the earliest to spot the potential and are now beginning to attract investors to their venture. HDFC bought into Credila in 2009 when the latter's cumulative disbursements were less than Rs 25 crore. Today, Credila's educational loan portfolio has grown to over Rs 1,000 crore. 

"For FY13, the loan book grew by close to 80% over the previous fiscal," Karnad said. The company has provided loans for around 694 courses for students in over 2,000 institutes across 36 countries. 

Recently International Finance Corporation picked up a 20% stake in Dewan Housing Finance's education loan subsidiary Avanse for Rs 12.75 crore. Avanse has disbursed Rs 50 crore in loans so far and is targeting Rs 100 crore by the end of this fiscal. "We hope to break even by the second year," said Neeraj Saxena, business head, Avanse Education Loans. 

Curiously, the sector attracts interest despite a legacy of bad loans. In nationalized banks, the education loan segment is marked by rising defaults or non-performing assets (NPA). Some have recorded a gross NPA as high as 15% in their portfolios in some states, prompting them to lay down stiff conditions for loans after years of liberal disbursals. Some have even been pulled up by the courts for denying loans to students or for laying down such conditions. But the apex body of the institutions, Indian Banks' Association (IBA), has now amended the repayment rules for this segment, given its socio-economic significance. 

An IBA committee has recommended the repayment schedule on education loans be extended to 10 years from 5-7 years currently and an education loan guarantee by the government for loans up to Rs 7.5 lakh. "Education loans are a lucrative market and will continue to be an attractive proposition in the future. The education credit guarantee fund is in its final stages and will be launched soon," said chairman and managing director of Indian Bank TM Bhasin who chaired the panel on the education loan scheme. 

Home finance companies are not guided by the IBA model when it comes to disbursal of education loans. But company officials are quick to point out that they have their own mechanism on judging criteria and the final loan outcome is on a case by case basis, often influenced as much by the profile of the institute as of the student. "We have our database of institutes and have developed our own rating model for colleges," said Saxena. Nearly 50% of the company's disbursals so far are towards management courses with the average loan size ranging from Rs five to six lakh. 

With the proliferation of B-schools and engineering colleges, it's early days for these companies. With a 35% CAGR (compounded annual growth rate) in the sector over the last eight years, education loans are clearly still a learning experience for them.

Source : The Times Of India