Rating Rationale
March 12, 2024 | Mumbai

Aries 2023

(Originator: Satin Creditcare Network Limited)

'CRISIL AA- (SO)' for Series A1(a) PTCs and 'CRISIL A- (SO)' for Series A1(b) PTCs converted from porvisional ratings to final ratings

 

Rating Action

Tranche Name

Amount Rated (Rs.Crore)

Outstanding Amount (Rs.Crore)

Balance Tenure

Credit Collateral (Rs.Crore)

Ratings/Credit Opinions

Rating Action

Series A1(a) PTCs

28.5

24.85

18

2.04

CRISIL AA- (SO)

Converted from Provisional Rating to Final Rating

Series A1(b) PTCs

7.12

7.12

18

2.04

CRISIL A- (SO)

Converted from Provisional Rating to Final Rating

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has converted the provisional rating assigned to Series A1(a) Pass-Through Certificates (PTCs) and Series A1 (b) PTCs issued by ‘Aries 2023’ to a final rating of 'CRISIL AA- (SO)' and ‘CRISIL A- (SO)‘ respectively. The PTCs were issued under a securitisation transaction backed by is backed by a pool comprising microfinance loan receivables originated by SCNL.

 

This transaction is backed by a pool comprising microfinance loan receivables originated by SCNL. The ratings are based on credit quality of the pool cash flow, origination, and servicing capabilities of SCNL, credit support available to the PTCs, payment mechanism for the transaction, and soundness of the transaction’s legal structure.

 

CRISIL Ratings has now received the final legal/executed documents for this transaction. These executed documents are in line with terms of the transaction envisaged when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating to a final rating.

 

Legal Documents

  • Amended and restated Declaration of Trust
  • Assignment Agreement
  • Accounts Agreement
  • Servicing Agreement
  • Power of Attorney

 

Other Documents

  • Information Memorandum
  • Term Sheet
  • Auditor’s Certificate
  • Legal Opinion
  • Representations and Warranties Letter
  • Trustee Awareness Letter

 

The transaction has a ‘par’ structure wherein the seller will assign the loan receivables to ‘Aries 2023’ in exchange for a purchase consideration, which is equal to 87.5% of the pool principal. The trust will issue Series A1 (a) PTCs for 70.0%, Series A1 (b) PTCs for 17.5% and 12.5% of the initial pool principal will act as overcollateralization. Series A1 PTCs are entitled to receive timely interest on a monthly basis and principal on ultimate basis Interest is pari-passu for both the tranches. In case of monthly interest not being met for both the tranches, cash collateral shall be utilized for the same. Until scheduled maturity date February 10, 2025 of Series A1(a) PTCs, principal will go fully towards its redemption. After February 10, 2025, principal will also become pari passu for both the tranches. On the final payout date August 10, 2025, in case of any shortfall in principal, cash collateral would be first used for payments to Series A1(a) PTCs and then for Series A1(b) PTCs.

Key Rating Drivers & Detailed Description

Strengths:

  • Credit collateral in the structure amounting to Rs 2,03,54,253 (5.0% of pool principal). Internal support for Series A1 (a) and A1 (b) PTCs from scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 10.34 crore which includes Rs 5.09 crore of principal overcollateralization (12.5% of pool principal) and Rs 5.25 crore of excess interest spread (12.9% of pool principal)
  • All the contracts (number: 11,174) in the underlying loan pool are current as of the cut-off date (December 01, 2023). The pool is characterised by weighted average seasoning[1] of 5.6 months and principal amortisation of 18.7%.

 

Weakness:

  • Susceptibility to political and regulatory environment:
    • The microfinance industry remains susceptible to risks arising out of socio-political issues and regulatory changes. Such events have the ability to disrupt loan repayments of underlying borrowers. The unsecured nature of microfinance loans and inherent modest credit risk profile of the borrowers have been considered by CRISIL Ratings in its analysis.
  • Impact of other disruptions
    • Covid related disruptions led to very high delinquency levels for the sector and the sector remains prone to other events like droughts, floods etc.
  • The pool is geographically concentrated with the share of top 3 states and top 3 districts at 86.5% and 24.0% of pool principal respectively

[1] 2 biweekly instalments taken as 1 emi

Rating Sensitivity factors

Upward factor:

  • Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 2.1 times (for Series A1 (a) PTCs) and 1.6 times (for Series A1 (b) PTCs) the adjusted shortfalls on the residual cash flows of the pool.

 

Downward factor:

  • Credit enhancement (based on both internal and external credit enhancements) falling below 1.8 times (for Series A1 (a) PTCs) and 1.4 times (for Series A1 (b) PTCs) the adjusted 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.

About the Pool

The transaction is backed by microfinance receivables originated by SCNL. The contracts in the pool have weighted average seasoning of 5.6 months, consequently, the pool is amortised by 18.7% as of the cut-off date/. The pool is mildly concentrated in terms of geography with the top 3 state and top 3 districts accounting for 86.5% and 24.0% of pool principal respectively. The average ticket size for contracts in the pool is Rs 46,500, with a weighted average interest rate of 25.0%. All the contracts in the underlying loan pool are current as of the cut-off date (December 01, 2023)

 

CRISIL Ratings has adequately factored all these aspects in its rating analysis.

 

Key Rating Assumptions and Sensitivity

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed SCNL’s moving portfolio delinquency information for microfinance loans from April 2016 to September 2023. CRISIL Ratings has also analysed the portfolio cuts based on various parameters and compared the pool with the portfolio on these parameters. Further, CRISIL Ratings has factored the delinquency performance of the microfinance industry in various geographies.

 

CRISIL Ratings has estimated base shortfalls for the pool at 9.0%-11.0% of cash flows. Additionally, stresses on account of geographic concentration, pool specific characteristics and political factors have been applied. CRISIL Ratings has also assumed a monthly prepayment of 0.5%-1.5% in its credit enhancement calculation. CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to Counterparty Details). CRISIL Ratings 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

The table below lists parties to the transaction, the capacities in which they are involved, and the impact of their non-performance on the ratings on the PTCs.

 

Capacity

Counterparty Name

Counterparty Rating

Effect on credit ratings in case of non-performance

Originator

SCNL

Not rated by CRISIL

No effect.

Servicer

SCNL

Not rated by CRISIL

Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL Ratings does not envisage the need for replacement. The Trust or investor has right to change the servicer with an intimation to CRISIL Ratings.

Collection and Payout Account Bank

ICICI Bank Limited

CRISIL AAA/CRISIL AA+/Stable

Negligible effect. Account bank can be changed without impacting the rating.

Credit collateral in the form of Fixed Deposit

HDFC Bank

CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+

Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.

Trustee

Catalyst Trusteeship Limited

Not rated by CRISIL Ratings

Negligible effect. Can be replaced at minimal cost.

 

About the Originator

Satin Creditcare Network Limited (SCNL or Satin) is a leading microfinance institution (MFI) in the country with presence in 23 states & union territory and around 95,000 villages. The company’s mission is to be one stop solution for excluded households at the bottom of the pyramid for all their financial requirements. The company also offers financial products in the Non‐MFI segment comprising loans to MSMEs and housing finance through its subsidiaries Satin Finserv Ltd. and Satin Housing Finance Ltd 

Key Financial Indicators

As on/for the period ending

Unit

Mar-23

Mar-22

Mar-21

Mar-20

Total assets

Rs crore

7850

7656

8045

7300

Total income

Rs crore

1559

1381

1380

1530

Profit after tax

Rs crore

5

21

-14

155

Gross NPA (90+ dpd)

%

3.28

8.01

8.40

3.28

Adjusted gearing

Times

5.04

4.45

5.25

5.58

Return on managed assets

%

0.05

0.20

(0.13)

1.47

*annualised

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Type of Instrument

Rated Amount (Rs.Cr)

Date of Allotment

Maturity Date

Coupon Rate (%) p.a.p.m

Complexity level

Credit collateral (Rs.Cr)

Outstanding Ratings

INE0SU015013

Series A1(a) PTCs

28.5

30-Dec-2023

10-Aug-2025

11.70%

Highly Complex

2.04

CRISIL AA- (SO)

INE0SU015021

Series A1(b) PTCs

7.12

30-Dec-2023

10-Aug-2025

13.95%

Highly Complex

2.04

CRISIL A- (SO)
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1(a) PTCs LT 24.85 CRISIL AA- (SO) 08-01-24 Provisional CRISIL AA- (SO)   --   --   -- --
Series A1(b) PTCs LT 7.12 CRISIL A- (SO) 08-01-24 Provisional CRISIL A- (SO)   --   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
Meaning and applicability of SO and CE symbol
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer

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