Tech layoffs didn't impact education loan repayments in FY23: Crisil

Tech sector job losses did not have any impact on the education loan portfolios of Indian non-bank finance companies that lend to students for pursuing coveted foreign degrees, according to a rating agency.

The non-performing assets (NPAs) of the NBFCs in education loans -- over 90 per cent of which are foreign students -- have remained below 0.5 per cent, Crisil said on Thursday.

The rating agency's senior director Ajit Velonie said there are structural reasons for the lower NPAs, including the insistence on having a co-borrower, which is usually the parent.

"..The collection efficiencies for these portfolios remained stable even during fiscal 2023 despite job losses," the agency said.

It can be noted that the last fiscal witnessed thousands of layoffs in the tech sector, especially by big tech companies like Microsoft, Amazon, Google etc, which are otherwise considered stable jobs. Indian techies, who typically join such companies after their master's degree in the US, are among those impacted in the current cycle.

The rating agency said half of the over Rs 25,000 crore education loan assets under management for NBFCs are loans given to students pursuing a degree in the US.

Velonie said other factors which have helped the quality of the portfolio include a focus on science, technology, engineering and mathematics (STEM) courses that have a better track record of employability and structured repayment terms with loans typically moving to full equated monthly instalments (EMIs) towards the end of the course tenure and coinciding with job placements.
The agency, however, said that while the asset quality has been resilient so far, the impact of the macro events -- which include layoffs, high inflation and rate hikes -- will be monitorable.

It expects non-bank lenders' education loan portfolio growth to moderate to over 35 per cent in FY24, from the 100 per cent jump witnessed in the year-ago period, a domestic rating agency said on Thursday.

The assets under management (AUM) for the non-bank finance companies are estimated to grow to Rs 35,000 crore by the end of the fiscal. The AUM had stood at Rs 13,000 crore at the end of FY22 and jumped to Rs 25,000 crore at FY23-end.

Its deputy chief rating officer Krishnan Sitaraman said adequate risk classification of foreign universities -- both institute-wise and course-wise -- and structured loan repayment terms have helped the NBFCs.
The pandemic had impacted foreign education by Indian students because of the travel restrictions, and the overall number of students travelling abroad had halved to 2.6 lakh in FY21, which later doubled to 4.5 lakh in FY22 and increased further to 7.5 lakh in FY23, the agency said.

"?the number of Indian students travelling abroad to pursue higher studies is expected to continue to rise, growth rates may moderate due to the higher base effect and subdued global economic growth landscape and the attendant layoffs, particularly in the technology sector," Crisil said.

It is estimated that only a fifth of the education loans portfolio of NBFCs falls under the full-EMI payment mode and the rest is under contractual moratorium or has lower EMI offered to students during the initial years of the loan.

"Any prolonged downturn in employment rate and job losses as the portfolios move to a full-EMI structure and their impact on asset quality remain monitorable," it said.