HDFC enters education loan with HDFC Credila buy

14 November 2009

14 Nov, 2009, 0141 hrs IST, ET Bureau
MUMBAI: India's largest mortgage company is diversifying into education loans. Housing Development and Finance Corporation (HDFC) has acquired a 41% stake in HDFC Credila Financial Services, a company that specialises in education loans, for Rs 10 crore. The transaction values the company at Rs 23 crore.

HDFC has acquired the stake from Merrill Lynch, which was an initial investor in the company, promoted by Anil Bohora and Ajay Bohora in 2006. HDFC Credila commenced business as an NBFC from 2007 with its registered office in Mumbai. It currently has offices in Pune, Bangalore, Hyderabad, Chennai, Delhi and Nashik.

"Education is growing expensive and the demand for education loans is growing,? said VS Rangan, senior GM - treasury, HDFC

In recent years, large Indian business groups have forayed into education, a sector that many feel has a huge potential. A few private equity investors are also betting on education by buying into little-known unlisted entities that they think could join the valuation play in future.

Since HDFC is registered as a housing finance company, it can engage only in mortgage finance. There is small amount of general financing done by the company through its 'top-up' loans to home loan customers. Besides, there is no specialised lending toward education.

Mr Rangan said HDFC would have some involvement in the company and in the distribution of education loans. "We will use our existing distribution network for the loans,? he added.

Unlike bank education loans, HDFC Credila's loans are all secured. The company insists on one or more creditworthy co-borrowers for all disbursals. It has also entered into agreement with a students tracking agency abroad.

Last year, rating agency Care issued a 'triple B minus' rating to Credila. The rating drew comfort from HDFC Credila's management team and technology-driven systems and its success in attracting investment from a large investment bank "However, the rating is constrained due to HDFC Credila being a start-up NBFC and has no track record in the line of business. Moreover, its untested underwriting and recovery procedures, exposure to single asset class and ability to sustain stiff competition from banks offering education loans at lower interest rates would be major rating sensitivities,? the agency had said.

Before founding Credila, the Bohoras founded a healthcare claims processing company called ClaimsBPO in January 1997 with a US joint venture partner. In 2003, ClaimsBPO was sold to WNS Global Services, a Warburg Pincus-owned company, listed on NYSE. The promoters are both engineers who have relocated from executive positions in the US. Ajay was earlier with MetLife in its New York office, while Anil had worked in senior positions in AOL Time Warner and Pitney Bowles.

Source: Economic Times