The first securitisation transaction in India backed by medical equipment loan receivables has been placed recently. The ratings are based on the credit quality of the pool cash flows, ICICI Bank's origination and servicing capabilities, the credit enhancement mechanism, liquidity facility and the soundness of the legal structure.

According to Mr. Ramraj Pai, Head - Structured Finance, CRISIL, "Securitisation of medical equipment loan receivables represents the nineteenth asset class rated by CRISIL and reflects the confidence of the market in experimenting with investing in newer asset classes." The pool consists of 906 loan contracts disbursed by ICICI Bank to 633 borrowers. The loans have been disbursed to fund the purchase of medical equipment like Ultrasound system, CT Scan, MRI, etc. The borrowers are predominantly doctors or entities promoted by doctors, who are highly qualified and educated professionals. The pool is of a moderate credit quality where the high seasoning profile is tempered by borrower concentration (top 10 borrowers account for approximately 8 per cent of the pool receivables). These characteristics are factored into the rating.

The structure has two types of Senior Pass Through Certificates - Series A and Series IO. While Series A shall be eligible for the principal repayments and prepayments along with monthly interest payment, Series IO shall be eligible for the residual interest receivables from the pool. The transaction is supported by external enhancements in the form of credit collateral and liquidity facility. The liquidity facility is used to fund shortfalls in collections due to delayed payments from contracts that have not paid for a period less than 3 months. For delayed payments beyond 3 months the credit collateral will be used to fund the shortfalls.

While ICICI Bank is a recent entrant into the medical equipment finance market in India, it has become a significant player in this market with disbursements of about Rs. 2.1 billion during the nine months ended December 31, 2004. The bank's strong origination and collection processes coupled with 100 per cent post-dated-cheque-backed financing have enabled it to maintain a healthy collection performance. Further, the bank's tie-ups with the equipment manufacturers for the sale of repossessed equipment have helped it maintain very low loss levels in this segment.

CRISIL has rated 28 pools of asset backed securitisation transactions originated by ICICI Bank till date. The performance of these pools has been excellent with strong collections and limited usage of credit-cum-liquidity enhancements.

¹ The provisional ratings would become valid once the legal documentation pertaining to the transaction is duly executed to the satisfaction of CRISIL. Further, the ratings are subject to confirmation of the yields at which the PTCs are placed. Consequently, CRISIL will issue a compliance letter.