HDFC, India’s largest mortgage lender, has started selling its education loan subsidiary, Credila Financial Services. As per sources familiar with the matter, this deal is worth up to $1 billion. The sale has been in the works for several months, and HDFC has reportedly chosen Jefferies as its adviser.
Shifting Focus on Core Business
The sale of Credila is part of HDFC’s strategy. It is to focus on its core mortgage lending business and divest its non-core assets. Credila, which provides student education loans, has been a subsidiary of HDFC since 2014. It has a loan book of around $1 billion and operates across more than 30 cities in India.
Sources say that HDFC wants to sell Credila to a strategic investor or a private equity firm. Given the rising demand for student loans in India, there is anticipated a lot of interest in the sale.
Education loans have become increasingly important in India as higher education costs have risen sharply over the past decade. The Reserve Bank of India reported that the number of outstanding education loans in India increased from Rs 62,300 crore ($8.3 billion) in March 2020 to Rs 69,776 crore ($9.3 billion) as of December 2020.
Credila has been a significant player in the education loan market, with a strong brand and a network of more than 4,000 colleges and universities across India. It has also been an innovator in the sector, offering loans for various courses, including vocational courses and executive education programs.
HDFC’s decision to sell Credila comes as the company has been focusing on its core mortgage lending business. In December 2020, HDFC sold a 24.5% stake in its subsidiary HDFC Ergo to Germany’s Munich Re for Rs 1,347 crore ($181 million). It has also been looking to sell its 15% stake in HDFC Life Insurance, valued at around Rs 24,000 crore ($3.2 billion).
Involvement with High-Profile Deals
International investment bank Jefferies, selected as the sales consultant, has a significant presence in India. It has been involved in several high-profile M&A deals in India, including Walmart’s $13.6 billion acquisition of Flipkart in 2018.
According to Bloomberg News, the sale of Credila is expected to be a significant transaction in the Indian education loan market. It could set the tone for future deals in the sector. Several private equity firms and strategic investors have been eyeing the education loan market in India, given the growing demand for such loans.
HDFC will also get sizeable proceeds from the sale of Credila. It may utilize this money to improve its balance sheet and expand its primary mortgage lending operation.
Overall, the Credila sale marks a significant milestone for HDFC. It continues to focus on its core business and divest its non-core assets. In the upcoming years, India’s market for student loans will expand. The Credila sale may open the market to new competitors or enable current competitors to increase their market share.
