With education expenses increasing by the day and with students left with no option but to avail loans to pursue their higher studies, according to a survey, Public Sector Banks account for 95% of the education loans that have been disbursed. Despite their staggering share in the education loan sector, Public Sector Banks are now shying away from disbursing education loans due to a number of loans being deemed as non-performing assets (NPAs) – leading to a market slump and a black mark in the loan books of PSBs (Public Sector Banks). With Public Sector Banks taking a step back from disbursing loans, Non-banking financial companies (NBFCs) have been making the most of the decision of PSBs and in addition, independent education loan companies have been propping up as well.
Based on data released by the Reserve Bank of India, the overall education loan portfolio currently stands at Rs.705 billion, against Rs.720 billion as of February 2017, which is a 2% drop. Out of that share, NBFCs education loan portfolio stands currently at Rs.5,000 crore. As already mentioned, independent education loan companies have been propping up as well, with securitisation of education loans their top priority. According to Avanse Financial Services, while Public Sector Banks disburse loans based on the credentials of the parents of the student, they have taken a more student approach. Due to this, this education loan company has recorded a compound annual growth rate (CAGR) of 200% over the last five years, while non-performing assets amounting to 0.10% of their portfolio of Rs.1.08 billion. Before disbursing loans, Avanse Financial Services does a background check of the student, assessing their past grades, their GRE score if they wish to study abroad, and the probability of them finishing the course and securing a lucrative job. Based on the aforementioned factors, this education loan company decides whether they would disburse the loan or not – making it a point that disbursal is not based on solely the financial status of the parents of the student who wishes to avail the loan.
While commercial banks across the country are shying away from disbursing loans for education purposes of late, NBFCs on the other hand are looking to increase their penetration in the sector – with securitisation of loans a matter of top priority before disbursal.