As the number of Indians studying abroad rises, the education loan portfolio of scheduled commercial banks (SCBs) has seen robust growth and banks have also managed to bring down NPAs from the Covid-19 highs.

Reserve Bank of India (RBI) data shows that as of end of November 2024, total education loan outstanding in public and private banks stood at ₹1,31,629 crore, up 17 per cent from November 2023. Education loans by banks has seen a 8 per cent CAGR from 2015 to 2024. The outstanding under this loan segment fell by 3 per cent in 2018 as the global economy slowed. Growth was also flat during the Covid years of 2020 and 2021. But share of education loans in the total personal loans outstanding have been trending downward as other forms of lending such as vehicle loans, credit card dues gain ground.

However, banks have managed to bring down stress in this segment by way of stricter credit appraisal and collection efforts.

Analysis of RBI’s Financial Stability Report show that the Gross Non-performing assets (GNPA) of banks in education loans is down from the Covid highs of 7.2 per cent as of September 2021 to 2.7 per cent as of September 2024. GNPA of education loans prior to 2021 was not available but analysts note that they have historically been in the range of 5-6 per cent for banks. As per current RBI guidelines, banks must not obtain collateral in the case of education loans up to ₹4 lakh and beyond that limit, they must be backed with security.

Pvt sector banks, NBFCs

“Earlier education loans was dominated by public sector banks but in recent years, especially post Covid, private banks and NBFCs have accelerated lending,” Nilanjan Chattoraj, Head, Credit & Product - Education Loans, InCred Finance, said. Given that it is a specialised asset class needing domain expertise around colleges, geopolitical factors, immigration norms and other policies, NBFCs have been able to create a space for themselves in this segment, he adds.

As per Crisil, the 90+ days’ past due for education loans for NBFCs was at ~0.2 per cent as on March 31, 2024 compared to a GNPA of 2 per cent and 3.9 per cent for private and public sector banks respectively in this period.

Further growth expected

Vivek Iyer, Partner and Financial Services Risk Leader, Grant Thornton Bharat, expects education loans to grow further. “Compensation levels probably won’t be as much during a slow job market, but we don’t expect employability of individuals to be impacted and therefore no impact on the ability of the individuals who have taken education loans,” he said.

But, delinquency in this category is still much higher than other personal loan categories such as housing, vehicle and others.