HDFC announces a 41% stake in Credila

13 November 2009

Published on Sat, Nov 14, 2009 at 11:23 | Updated at Sat, Nov 14, 2009 at 11:26 | Source : Business Line

Housing finance major HDFC is entering the education loan business, which the company sees as a high growth segment.

HDFC on Friday announced acquisition from DSP Merrill Lynch Capital of a 41% equity stake in a finance service company HDFC Credila Financial Services that specialises in education loans.

Though the acquisition is modest in terms of value terms, the move assumes significance as the housing finance company is entering into a new line of business. The investment is less than Rs 10 crore, said VS Rangan, Senior General Manager, HDFC.

Mumbai-based HDFC Credila Financial specialises in student loans, especially for students going abroad. The NBFC (non-banking financial company) has a loan portfolio of around Rs 20 crore, built over the last two years.

Rangan told Business Line that the student loan segment is growing at an annualised rate of about 25-30%, which makes this investment an attractive one for HDFC. The company had earlier given some small student loans, but did not focus on this segment. As of now HDFC has no plans to lend directly. Instead it will focus on growing the business of HDFC Credila Financial and even infuse fresh capital if required, Rangan said.

"We have to grow this business. So we will infuse capital as required. As of now not much capital is required,? he said. DSP Merrill Lynch has sold its entire stake of 41%.

The remaining 59% is held by the promoters Bohora Brothers.

Banks active in the education loans have seen good credit growth as this segment has not been hit much by the downturn. In the September ended quarter, most banks reported over 25% growth in student loan protfolio.

According to Rupa Rege Nitsure, Chief Economist, Bank of Baroda, education loans are not linked to the immediate income of the borrower but are linked to the future earnings.

Therefore, the immediate economic scenario has no impact on this segment.

Bank of Baroda saw its education loan portfolio grow by 29% in the September ended quarter. For Bank of India the growth was 24% and for Union Bank of India the growth was 40%.

Taken from Business Line