The tensions between India and Canada are less likely to impact the assets under management of education loan non-banking financial companies (NBFCs), CareEdge Ratings said in a report on Monday. This is because students are likely to seek alternative destinations for their education instead of postponing their academic pursuits.
The assets under management of retail education loan NBFCs for the students pursuing education in Canada increased to Rs 5,183 crore as of June 30 from Rs 1,426 crore as of March 31, 2021. This constituted nearly 20% of the total assets under management.
NBFCs have experienced consistent growth in the overseas education segment, driven by a strong and sustained demand for international education among Indian students. Going forward, the demand for international education will persist due to the robust volume of loan applications witnessed during April-September and the continued high number of student visa issuances for Indian students. While the incremental volume of applications to Canada may be impacted in the short-term due to ongoing bilateral tensions between the two countries, analysts believe that these issues will be resolved.
Currently, Canada stands as the second largest market in terms of regional exposure for education loans among specialised education loan NBFCs, second only to the US. The exposure to the Canadian market has witnessed a compound annual growth rate of 77.5% from March 31, 2021 to June 30, 2023.
The impetus for this growth is primarily attributed to the robust demand for education in Canada, and an increasing number of student visa issuances to the Indian students. Visa issuances to the Indian students constituted 39.9% of the total student visa issuances to international students as of August 31, 2023.
From Canada’s perspective, international students make a substantial and positive contribution to their economy through various means. This includes their contribution through tuition fees for Canadian colleges and universities, as well as covering living expenses such as food, accommodation, and transportation.
The financial impact of international students on Canada’s economy is noteworthy, as tuition fees for international students typically range from two to three times that of domestic students.
A majority of financing extended by NBFCs is towards postgraduate courses, primarily in the fields of Science, Technology, Engineering, and Management (STEM), which are known for their high employment opportunities. Despite the unsecured nature of a significant portion of these loans, NBFCs have managed to maintain a commendable level of asset quality.
As of June 30, 2023, the days past due exceeding 90 days for the Canada portfolio remained sound, standing at less than 0.10% for retail education loans. “However, a substantial portion of outstanding loans lacks seasoning due to the rapid loan book expansion witnessed post-FY21,” the report said.
“In addition, according to a survey conducted by CARE Ratings, there have been no discernible impacts on the ground so far in terms of either student or work visa issuances,” it added. In the near term, the asset quality of the Canada portfolio will largely hinge on any government actions taken against Indian students that could lead to employment challenges. But under the current circumstances, the credit rating agency does not foresee any significant impact on asset quality, the credit rating agency said.