HDFC to sell students loan subsidiary.

HDFC Credila Financial Services, the country's largest education loan provider, is on the block.HDFC has decided to sell its student loan subsidiary ahead of its merger with HDFC Bank and has appointed an investment banker for the stake sale. Sources suggest the company will be valued at Rs 10,000 core, approximately four times its net worth.

    HDFC is currently in the process of merging with HDFC Bank and, as a condition of the merger, the Reserve Bank of India (RBI) has instructed HDFC to sell or merge Credila with either HDFC or HDFC Bank before the consolidation. Both merging entities are busy integrating their home finance business and are not keen on taking on any further consolidation. Until the stake sale, HDFC Credila has been disbarred from extending fresh loans.

   Credila is India's largest education sector-focused NBFC, specialising in providing education loans to students pursuing higher education in India and overseas. Since its establishment in 2006, it has extended loans to 1.2 lakh customers.

  In FY23, HDFC Credila's gross loan assets stood at Rs 15,298 c tore, up 73% from FY22 levels, with a profit after tax of 276 c tore and a net interest margin of 4%.Its net worth at the end of FY23 was Rs 2,435 crore.

   HDFC acquired Credila from brothers Anil and  Ajay Bigots when its education loan assets were about Rs 10,000 crore. The Bigots brothers founded the company after encountering challenges in obtaining a loan from a bank for their education.DSP Merrill Lynch invested 40% equity in Credila in 2007, and HDFC purchased DSP Merrill Lunches stake in Credila in 2009.

     The Bohora brothers exited HDFC Credila in December 2019 when HDFC bought their 9.1% stake for Rs 395 crore ($56 million), valuing the company at $614 million, which was Rs 4,331 crore.

     According to Ajay Bohora, the education loan business is best undertaken by a mono-line player doing only one line of business.

   Credila is set apart from other lenders by its ability to assess the quality of the institution for the education loan, which puts it in a better position to extend unsecured loans. He also believes that there is enormous potential in the education loan business in India, which has the youngest population in the world, which around 25 crore students in the group up to class 12. While public sector banks have a mandate to extend education loans, they are not fully equipped to meet the challenges.