Theres a lot of scope for innovation in education loans

Written by Sitanshu Swain | Updated: Jan 17 2012, 08:53am hrs
With the cost of various professional courses going up rapidly, the demand for educational loans has gone up substantially in the recent times. Prashant Bhonsle, chief executive officer of Credila Financial Services, a subsidiary of HDFC that is exclusively focused on education loans, in an interview to FE's Sitanshu Swain, says there is a huge scope for innovation in education loans, such as offering mid-course funding and funding for shorter terms. He also says that lenders must understand the quality of the course and institute and also the student's potential employability, which are vital for the quality of the loan portfolio. Excerpts:

How do you see the growth of the education loan industry in the country

The education loan industry is growing and the current outstanding of education loan is about R43,000 crore. Apart from banks, Credila is the only specialised player in the educational loan market. What banks are offering is the very basic product, which has been in existence for around eight years now. So, there is a lot of scope for innovation like offering mid-course funding and funding for shorter terms. No doubt, the pace needs to catch up with the rate of growth in the cost of education and education sector supply. That means a lot of talented Indian students (and their parents) may increasingly find it difficult to afford the education on their own. At the same time, institutes are also facing the challenge of attracting talented students who can afford the higher fees and living expenses.

Similarly, for lenders, understanding the quality of the course and institute and also the student's potential employability are vital for the quality of the portfolio. These issues make the perceived risks relatively much higher for a normal lender. Therefore, there is a need for specialised players in the education loan industry who not only understand the changing needs of Indian students, but are also able to evaluate the quality of the course, institute and employability more scientifically. Moreover, the innovation in products and processes to make it hassle-free for people availing these loans is going to be the game changer.

Which segment students taking admission abroad or in India is growing faster

As we know, being one of the youngest countries in the world means that the pool of Indian students aspiring for higher education is also one of the largest across the globe. One of the estimates indicate that India will have over 25 million students in the higher education system alone in next 2-3 years.

Our capacity to accommodate these large numbers will take a longer time to get built. Thus, we will continue seeing exponential growth in both segments. The only limitations for Indian students going abroad are visa caps and high costs.

How do you differentiate your style of doing the business from banks What is the maximum loan you can give and for what tenure

We are different from banks in many ways. First of all, we specialise in education loans only. So, unlike banks that have to manage the entire suite of liabilities and asset products and processes, Credila's entire focus is only on doing a lot of research to understand the exact challenges Indian families, institutes and lenders are facing. This enables us to come up with new products and processes that suit the changing needs of all stakeholders. Education loan is a seasonal business and a sudden surge in applications during the admission time makes it challenging for banks to ensure that students are given the decision on their applications before they have to pay the fees.

Credila accepts lower loan security or collateral value for higher amounts of loans for deserving applicants. We are the first in offering over R20 lakh education loans as well as up to 10 years of repayment tenures.

Are you competitive in terms of rates than the banks

Yes, we are extremely competitive in terms of rates with banks. Over and above the other features like flexible co-borrowers and collateral terms, we offer loans for longer tenures and loans amount over R20 lakh to the students and parents at similar rates.

How you are ensuring prevention of non-performing assets (NPAs) in your portfolio

Our superior underwriting capabilities based on strong research of educational institutes, courses, potential employability and compensation along with even cross-border tracking and collection abilities ensure that our portfolio quality is maintained at highest levels. Entrenched relationship with institutes and continuous engagement with students and parents also helps to keep NPAs under control.

There is a possibility of ratings for educational institutes for educational loans. What is your take on that

Yes, there is a need to improve the scope, objectives and delivering unbiased and quality rankings of educational institutes that can be used not only by the students, but also by lenders and other stakeholders of the ecosystem.

What are your expansion plans

Credila has financed the dreams of thousands of Indian students across 38 countries and over 1,000 universities, including large numbers in India. We would like to continue our journey to become the most preferred option of Indian students for education finance solutions.