Rating Rationale
February 06, 2020 | Mumbai
India Standard Loan Trust LV
(Originator: AU Small Finance Bank Limited)
'CRISIL AAA (SO) Equivalent' for Liquidity facility, 'CRISIL AAA (SO)' for Series A PTCs and 'CRISIL BBB+ (SO) Equivalent' for Second loss facility converted from provisional ratings to final ratings
 
Rating Action
Trust Name Details Amount Rated (Rs Cr) Outstanding
Principal
(Rs Cr)*		 Original Tenure (Months) Credit Collateral
(Rs Cr)		 Ratings/ Credit Opinions  Rating Action
India Standard Loan Trust LV Liquidity facility 3.96 3.96 54 - CRISIL AAA (SO) Equivalent Converted from provisional rating/ credit opinion to final rating/ credit opinion
Series A PTCs 395.97 355.49 54 38.81 CRISIL AAA (SO)
Second loss facility 26.93 26.93 54 11.88 CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*After December 2019 payouts 
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A pass-through certificates (PTCs) issued by 'India Standard Loan Trust LV' under a securitisation transaction originated by AU Small Finance Bank Limited (AU SFB; rated 'CRISIL AA-/Stable/CRISIL A1+') to final rating of 'CRISIL AAA (SO)'. The provisional credit opinion for liquidity facility and second loss facility under this transaction has been converted to final credit opinion of 'CRISIL AAA (SO) Equivalent' and 'CRISIL BBB+ (SO) Equivalent' respectively.
 
CRISIL has received the below mentioned final legal documents executed for this transaction.

  • Deed of Assignment
  • Trust Deed
  • FLCF Agreement
  • Liquidity Facility Agreement
  • SLCF Agreement
  • Power of Attorney

We have also received following additional documents as per CRISIL requirements:

  • Legal Opinion
  • Auditor's Certificate
  • Information Memorandum
  • Seller's Representations and Warranties
  • Trustee Letter
  • Audit Certificate

These executed documents are in line with terms of the transaction when provisional rating/credit opinion was assigned, hence, CRISIL has converted the provisional rating/credit opinion to a final rating/credit opinion.
 
Please click on the following link for detailed information on CRISIL's policy on provisional rating:
Revision in CRISIL policy for assigning 'provisional' ratings
 
This transaction is backed by a pool of receivables from vehicle loans originated by AU SFB. The ratings are based on credit support available to instruments, credit quality of the underlying pool of receivables, AU SFB's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread (EIS)' structure. In exchange for a purchase consideration equal to future pool principal outstanding as on the cut-off date, AU SFB assigned the loan pool to 'India Standard Loan Trust LV', a trust settled by Catalyst Trusteeship Limited (CTL), which issued instruments to investors. Investor payouts for Series A PTCs are supported by credit collateral and subordination of excess interest spread (EIS).
 
Total credit support available in the transaction structure is as below:

  • Internal credit enhancement from subordination of scheduled EIS (assuming zero prepayments) amounting to Rs 41.34 crore (10.4% of initial pool principal).
  • External enhancement from credit collateral in the structure amounting to Rs 38.81 crore (9.80% of initial pool principal) ' of which Rs 11.88 crore (3.00% of initial pool principal) is in the form of fixed deposits and Rs 26.93 crore (6.80% of initial pool principal) is in the form of bank guarantee. Additional support is provided by a liquidity facility of Rs 3.96 crore (1.00% of pool principal)

Series A PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis as per the transaction waterfall. AU SFB will continue to service loan contracts in the pool as the servicing agent.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Internal and external credit enhancement
    • External credit collateral in the structure amounting to Rs 38.81 crore (9.80% of initial pool principal) and internal credit enhancement from scheduled excess interest spread (EIS) (assuming zero prepayments) amounting to Rs 41.34 crore (10.4% of initial pool principal). Additional support is provided by a liquidity facility of Rs 3.96 crore (1.00% of pool principal)
  • Seasoning of contracts
    • Contracts in the underlying loan pool had a weighted average seasoning of 10.5 months on the cut-off date
Constraining Factors
  • Contracts overdue on repayment
    • 14.8% of the pool principal is from contracts that are up to 30 days past due on their EMI payment
About the Pool
The transaction is backed by receivables from pool of new and used vehicle loan contracts. Contracts in the pool have a good seasoning profile as evidenced by a weighted average net seasoning of 10.5 months. Contracts in the pool are also geographically concentrated with the top 3 states accounting for 65.7% of pool principal. The average ticket size for contracts in the pool is Rs 5.2 lakh, with a weighted average loan-to-value ratio of 92.2% at disbursement. The weighted average interest rate for contracts in the pool is 12.8%. 14.8% of the pool principal is from contracts that are up to 30 days past due on repayment as of the pool cut-off date (July 31, 2019). CRISIL has adequately factored all these aspects in its rating analysis.

Rating Assumptions
To assess the base case shortfalls for the transaction, CRISIL has analysed AU SFB's moving portfolio delinquency information for vehicle loans from April 2010 to June 2019, along with static pool performance for vehicle loans made FY07 onwards with performance up to June 2019. CRISIL has also analysed the portfolio cuts based on various parameters and compared the pool with the portfolio on these parameters. AU SFB's overall portfolio delinquency (90+ POS as % of total POS including write-offs) was 2.2% as of June 2019.
 
CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 5-7% of future cash flows from the pool.
  • CRISIL has assumed a stressed monthly prepayment rate of 0.3 to 0.8 per cent in its analysis.
  • CRISIL does not envisage any risk arising on account of commingling of cash flows since CRISIL's short term rating of servicer is 'A1+'
  • CRISIL has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)
  • CRISIL has run sensitivities based on various shortfall curves (front-ended, back-ended and normal) and has adequately factored the same in its analysis

Counterparty details

Capacity

Counterparty Name

Counterparty Rating / Track record

Effect on credit ratings in case of non-performance

Originator & Seller AU SFB CRISIL AA-/Stable/CRISIL A1+ No effect.
Servicer AU SFB CRISIL AA-/Stable/CRISIL A1+ Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL does not envisage the need for replacement. The Trust or investor has right to change the servicer with an intimation to CRISIL.
Collection and Payout Account Bank Axis Bank CRISIL AA+/CRISIL AAA/Stable/CRISIL A1+ Negligible effect. Account bank can be changed without impacting the rating.
Liquidity Facility (Bank Guarantee) AU SFB CRISIL AA-/Stable/CRISIL A1+ Significant effect. Rating on PTCs is directly linked to CRISIL's view on long term credit risk profile of guarantee provider.
First Loss Facility (Fixed Deposit) Ujjivan SFB CRISIL A1+ Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Second Loss Facility (Bank Guarantee) Kotak Mahindra Bank CRISIL AA+/CRISIL AAA/FAAA/Stable/CRISIL A1+ Significant effect. Rating on PTCs is directly linked to CRISIL's view on long term credit risk profile of guarantee provider.
Trustee CTL Adequate track record Negligible effect. Can be replaced at minimal cost.

About the Originator
AU SFB (formerly Au Financiers (India) Ltd) was incorporated in 1996 as and NBFC, promoted by Mr Sanjay Agarwal. It commenced SFB operations on April 19, 2017. The SFB listed its shares on Bombay Stock Exchange and National Stock Exchange during July 2017. It also received scheduled bank status as on November 01, 2017. It operates in the retail asset-financing segment, primarily in the vehicle financing segment (around 42.1% of AUM). Over the past few years, it has diversified into MSME and SME (37%) construction finance (4%), and loans to NBFCs (10%).
 
AU SFB's liability product offerings include the entire gamut including of Current Account, Saving Account, Recurring & Term Deposits, Transaction Banking, bouquet of third-party mutual funds and insurance covers. It has an established market position in Rajasthan, and has expanded operations to Maharashtra, Gujarat, Madhya Pradesh and other states over the years. As on March 31, 2019, it had about 408 branches and 83 asset centres across 11 states and 1 Union Territory. Over 80% of its branches are in four states Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.

Liquidity Strong
Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls.
 
Rating Sensitivity factors
Upward
  • For second loss facility - Credit enhancement (both internal and external credit enhancement) available in the structure exceeding 1.5 times the estimated base case shortfalls on the residual cash flows of the pool.
  • A sharp upgrade in the rating of the servicer/originator
Downward
  • For liquidity facility and Series A PTCs - Credit enhancement (both internal and external credit enhancements) falling below 2 times the estimated base case shortfalls; for second loss facility - Credit enhancement (both internal and external credit enhancements) falling below 1.1 times the estimated base case shortfalls
  • A sharp downgrade in the rating of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating
Past Rated Pools
There are no AU SFB PTC transactions rated by CRISIL which currently have ratings outstanding. Over 2011 to 2014, CRISIL had rated over 25 transactions originated by AU SFB, and received performance reports on a monthly basis pertaining to those transactions.
Key Financial Indicators
Particulars as on March 31 Unit 2019 2018
Total assets# Rs. Cr. 34,050 21,543
Total income Rs. Cr. 3,411 2,155
PAT Rs. Cr. 382 292
Gross NPA % 2.0 2.0
Overall capital adequacy ratio % 19.3 19.3
Tier I Capital % 16.0 18.4
Return on assets# % 1.4 1.7
# Includes securitised and off-balance sheet assets

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
Type of Instrument Rated Amount
(Rs Cr)		 Date of Allotment Maturity
Date #		 Coupon Rate (%) (p.a.p.m.) Outstanding
Ratings/Credit Opinions $		 Credit collateral
(Rs Cr) ^
Liquidity facility 3.96 30-Aug-19 20-Feb-24 - CRISIL AAA (SO) Equivalent -
Series A PTCs 395.97 7.00% CRISIL AAA (SO) 38.81 &
Second loss facility 26.93 - CRISIL BBB+ (SO) Equivalent 11.88
# Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option
^ Additional credit support includes Rs 41.34 crore in the form of scheduled excess interest spread
$ Series A PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis, as per the transaction waterfall
& Includes a second loss facility of Rs 26.93 crore
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Liquidity facility LT  3.96 CRISIL AAA (SO) Equivalent     24-09-19 Provisional CRISIL AAA (SO) Equivalent          
 Series A PTCs LT  355.49 CRISIL AAA (SO)     24-09-19 Provisional CRISIL AAA (SO)          
Second loss facility LT  26.93 CRISIL BBB+ (SO) Equivalent     24-09-19 Provisional CRISIL BBB+ (SO) Equivalent          
All amounts are in Rs.Cr.
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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