Private players and specialist lenders eyeing the Education Loan market
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Education loans provided by banks have risen by only 2.7% in the financial year 2017 (FY17) which is only half of the average growth rate of all the other loans. There is more to it though.
Private players and specialist lenders are eyeing the education loan sector with hope. HDFC Credila and Avanse, education loan specialists,have a 40% - 70% growth rate range in disbursements as new players like In-Cred Finance are also entering the field. Co-Founder and CEO, HDFC Credila, Ajay Bohora notices that there is rising demand for education loans. With the Government focusing more on primary education, a lot of private institutes are now setting up store for tertiary education in India. Moreover, tuition fees and other expenses involved in higher education has been on the rise in India which makes it tougher for the middle class to invest in education without a loan.
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He also said, "Appraising a loan application is not easy because there are over 700 universities in India—some, like the University of Pune, have over 600 affiliated colleges, with each having 20-30 courses—and for credit assessment it's important to know the employment opportunities for each course."
The education loan portfolio of banks has increased to Rs. 1800 crore and HDFC Credila has paid out loans worth Rs 1,300 crore in FY17. The pull back from education loans comes as a consequence of bad loans which are almost as high as 7-8%. Loans that are offered in the Rs. 4 lakh category do not require any security hence the defaulters are higher.
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A senior PSU bank official says there are two reasons behind the default. The first reason being that with so many engineering and management institutes springing up everywhere, the quality of education at these institutes is below par. The second reason is that many students move to another city post graduation and their loans get converted into Non-performing assets (NPAs).
Prashant Bhonsle, Head - Education Loan Verticle, In-Cred Finance said, "A lot of education loans are probably camouflaged as personal loans or loans against property."
Education loans can be repaid from 1-12 years depending on the duration of the course. Rajnish Kumar, MD, State Bank of India believes that the perspective on education loans has bettered with the Government coming up with a credit guarantee scheme for loans upto Rs. 7.5 lakh back in 2015. He also said, "The recovery problems that we faced in the south are now behind us and we will be growing the portfolio."
Rajiv Anand, Head - Retail, Axis Bank said, "We have grown 100%, although on a small base, and we see potential in this business." The focus of the bank is however on higher education in premier institutions like the Indian Institutes of Management since the fees and employment opportunities are both high. He added, "The advantage for us is that we have good banking relationships with several trusts and educational institutions which makes it easier to partner with them for education loans."