Education loans receivables has become the latest asset class in securitisation market in India, with CRISIL rating the pass-through certificates (PTCs) issued by the Vivriti Victor 002 2018 Trust. The PTCs – Series A1 and Series A2 – were assigned ratings of ‘Provisional CRISIL AA-(SO)’ and ‘Provisional CRISIL A+(SO)’, respectively. The transaction was originated by Avanse Financial Services Ltd. The ratings are supported by favourable characteristics of the underlying pool of education loan receivables – the ever-current nature of the contracts, seasoning, existence of a co-borrower in all the contracts, and availability of security in a majority of the contracts – as well as structural features such as scheduled cash-flow subordination and external cash collateral amounting to 29.4% and 4.0% of pool principal, respectively (please refer to our rating rationale dated March 8, 2018).
While assigning the ratings, CRISIL evaluated the performance of the education loan segment in the country, portfolio performance of the originator, and the unique features of the asset class.
CRISIL estimates the education loan market size at over Rs 75,000 crore, after growing at a 15+% compound annual growth rate in the past ten years. The segment is dominated by scheduled commercial banks extending education loans (eligible to be considered as priority sector lending) of less than Rs 10 lakh ticket size and higher ticket personal loans taken for educational purposes. Non-banks have also been steadily scaling up their loan book over the last few years.
Says Rohit Inamdar, Senior Director, CRISIL Ratings, “Well-underwritten education loan portfolios lend themselves to securitisation given the long-term nature of assets and attractive yields on the PTCs. For originators, securitisation provides much-needed capital relief and liquidity. However, selection of underlying pools recognising the unique characteristics of the asset class, presence of adequate level of credit enhancement, and appropriate liability-side structuring of the transactions to ensure the right risk-return profile are essential to draw investors on a sustained basis.”
Earlier this year, CRISIL had flagged the emergence of new asset classes in the Indian securitisation market driven by two key developments: widening of the investor base and growing demand for non-priority sector loan securitisation (please refer to our release ‘Securitisation scripts huge rebound after 20% fall in first half’, dated January 11, 2018).
Education loans are the latest entrant into the securitisation market. In February 2018, CRISIL announced the rating of the first personal loan / cash loan securitisation transaction in the Indian market in almost a decade. Furthermore, recently, CRISIL assigned its ratings on PTCs backed by receivables from consumer durable loans – another new market entrant in the current fiscal.
Says Krishnan Sitaraman, Senior Director, CRISIL Ratings, “The appetite for non-priority sector asset classes will remain elevated given the increasing participation of mutual funds and non-banking finance company treasuries in the securitisation market, and banks’ continued focus on retail asset growth. Healthy demand growth for non-priority sector securitisation augurs well for the long-term growth of the securitisation market, which is facing headwinds from the wide adoption of priority sector lending certificates by banks.”