MUMBAI, June 20 (Reuters) - Baring Private Equity Asia and ChrysCapital will buy a 90% stake in Indian mortgage lender HDFC's (HDFC.NS) education finance arm for 90.60 billion rupees ($1.11 billion), marking the country's largest-ever private equity buyout in the financial services sector.

The two investors valued HDFC Credila Financial Services at a pre-money valuation of 103.50 billion rupees and will infuse primary proceeds of 20 billion rupees into the company.

BPEA is one of Asia's biggest private equity firms managing more than $22 billion, while ChrysCapital is one of India's biggest local private equity firms. They two are betting on the country's aspirational middle class and an increasing number of students taking loans to study abroad.

Indian students studying abroad grew 68% to 750,365 in 2022, and these students are expected to spend $75-80 billion on foreign education in 2024, according to Credila's annual report.

Outstanding education loans of Indian banks jumped 18% year-on-year for fiscal 2023, compared with a 6.2% increase in the year-ago period, as per latest data from the Reserve Bank of India.

The announcement comes ahead of HDFC's $40 billion merger with HDFC Bank that is proposed to be completed next month.

The Reserve Bank of India had asked HDFC to reduce its shareholding in HDFC Credila to 10% within two years of the effective date of the merger.

Post the stake sale, HDFC will retain a 9.99% share in its education finance unit, which has extended loans to over 1.24 lakh customers since its inception in 2006.

Jefferies acted as the exclusive financial advisor to HDFC and HDFC Credila on the transaction.

The transaction is subject to regulatory approvals from the RBI and the Competition Commission of India, HDFC said.

($1 = 81.9480 Indian rupees)

Reporting by Siddhi Nayak and M. Sriram in Mumbai and Indranil Sarkar in Bengaluru; Editing by Janane Venkatraman

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