Asian fund BPEA EQT closes in on study loan financer HDFC Credila

Transaction may close at a valuation of $1.2 bn; sale expedited following RBI instructions to either sell the firm or merge it with HDFC or HDFC Bank before their own merger by July

A consortium of private equity firms led by BPEA EQT, an Asian private equity fund, is closing in on HDFC Credila Financial Services, a dedicated education loan company, at a valuation of up to $1.2 billion, banking sources said on Monday.

The sale has been expedited following instructions from the Reserve Bank of India to either sell the company or merge it with HDFC or HDFC Bank before their own merger by July. The regulator has permitted the bank to retain up to 10 per cent stake in the company. The education loan firm had loan assets of Rs 15,298 crore this March, and had made a profit of Rs 276 crore.

Both HDFC and BPEA EQT declined to comment on the development. HDFC had acquired the company in December 2019 at a valuation of Rs 4,331 crore. Since it was set up in 2006 by Ajay Bohora and his brother, Anil, the company has lent to 1.2 lakh customers – especially students going overseas for education.

In April this year, BPEA EQT, and its existing portfolio company Nord Anglia Education, acquired IMG Academy, a leading education institution supporting over 100,000 student-athletes across its suite of sports education services at an enterprise value of US$ 1.25 billion.

Experts said as more young Indians take loans to fund their education overseas, the demand for education loans will rise substantially in the coming years. As per rating firm Crisil, education loan assets under management of non-banking financial companies  is expected  to grow 35-40 per cent to Rs 35,000 crore this fiscal, riding on specialised business models and an increase in the number of students travelling abroad. Going forward, the growth would be moderate  but still remain healthy when compared with fiscal 2023, when AUM is estimated to have doubled to over Rs 25,000 crore from Rs 13,000 crore in fiscal 2022. Amidst the high growth, asset quality in the segment has remained good with low non-performing assets (NPAs).

The private equity firms are keen to invest in the sector due to low risk business models which include compulsory co-borrower (a parent in most cases back in India), and focus on science, technology, engineering and mathematics (STEM) courses that have better track record of employability.  ‘’The structured repayment terms with loans typically moving to full equated monthly instalment towards the end of the course tenure and coinciding with job placements. These have supported asset quality of education loan NBFCs so far, with the gross NPA (non-performing assets) remaining below 0.5 per cent even during the pandemic,” said Ajit Velonie, Senior Director of Crisil Ratings.