Rating Rationale
May 28, 2020 | Mumbai
Northern Arc 2019 MFI Artemis
(Originator: Asirvad Microfinance Limited)
Rating downgraded to 'CRISIL A- (SO)' ; continues on 'Watch Negative' 
 
Rating Action
Trust Name Details Initial Rated Amount (Rs Cr)  Outstanding Rated Amount
(Rs Cr)*		 Original Tenure (Months)# Balance Tenure (Months)# Initial Credit Collateral (Rs Cr) Rating Rating action
Northern Arc 2019 MFI Artemis Series A PTCs 77.71 42.26 21* 16* 5.12 CRISIL A- (SO)/Rating Watch with Negative Implications Rating downgraded from 'CRISIL A (SO)', continues on 'Watch with Negative Implications'
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
* After April 2020 payouts
# Indicates door to door tenure until final maturity date as defined at the time of securitisation; factoring in the in-principle approval from the investor, the tenure is 3 months longer than at the time of securitisation. Actual tenure will still depend on the level of prepayment in the pool, and exercise of the clean-up call option.
Detailed Rationale

CRISIL has downgraded its rating on Series A pass-through certificates (PTCs) issued by 'Northern Arc 2019 MFI Artemis' to 'CRISIL A- (SO)' from 'CRISIL A (SO)'. The rating continues to be on 'Rating Watch with Negative Implications'. The PTCs are backed by microfinance loan receivables originated by Asirvad Microfinance Limited (Asirvad; rated 'CRISIL AA-/CRISIL PP-MLD AA-r /Stable/CRISIL A1+).
 
The rating action is in light of the adverse impact of the moratorium on the collection efficiency of the underlying loans and the consequent effect on its asset quality. The rating factors in the credit support available to the PTCs, and the soundness of the transaction's legal structure and counterparty risks in the structure.
 
The nationwide lockdown (originally till April 14, 2020) declared by the Government of India to contain the spread of the Novel Coronavirus (Covid-19) will have near-term impact on disbursements and collections of companies. The lockdown is now extended till May 31, 2020 and there is high likelihood that eventual lifting of restrictions will be in a phased manner. Any delay in return to normalcy will put pressure on collections and asset quality metrics of Micro-Finance Institutions (MFIs) and their securitised pools. Additionally, any change in the behaviour of borrowers on payment discipline can affect delinquency levels.
 
As with several MFIs, Asirvad's operations have been severely impacted on account of the Covid-19 pandemic and the ongoing lockdown. Any inordinate delay in returning the servicer's operations, including collection and auction related processes, to normalcy could result in pressure on asset quality of the pool.
 
Based on the Trustee reports, the performance of the pool remains satisfactory. The pool has amortised by 40.7% as afterApr'20 payouts. Furthermore, the investor has granted consent for extending moratorium to the underlying borrowers in the pool (based on 'opt-in' option) and to amend the terms of May 2020 and June 2020 payments on the PTCs. During the moratorium period, interest is permitted to accrue and principal collections are expected to be passed to the investor. The repayment schedule for PTCs is to be redrawn due to the moratorium; and the servicer is required to provide the collection reports in a timely manner.

Key Rating Drivers & Detailed Description
Constraining Factors
  • Heightened servicing risk
  • Any inordinate delay in the operations of the servicer, including collection and auction related processes, returning to normalcy could result in pressure on asset quality and the servicer's ability to adhere to the transaction terms.
Supporting Factors
  • Credit support available in the structure
    • In the 8 months post securitisation, the pool has amortised by 40.7% after Apr'20 payouts which has led to an increase in credit cover available to the future investor payouts to 11.5%.
  • High Collection Efficiency
  • After Apr'20 payouts, the Cumulative Collection Ratio was 98.9%.
Liquidity: Strong

  • The credit collateral available in the transaction is Rs 5.12 crore (6.0% of the initial pool principal). The enhancement is in the form of fixed deposit placed with RBL Bank. 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
  • Credit enhancement  (based on both internal and external credit enhancements) available in the structure exceeding 2.0 times the estimated base case shortfalls on the residual cash flows of the pool.
Downward
  • Credit enhancement falling below 1.5 times the estimated base case shortfalls
  • Non-adherence to the key transaction terms envisaged at the time of the rating
These aspects have been factored by CRISIL in its rating analysis.

Pool Performance Summary (as after April 2020 payouts)
Deal Name Northern Arc 2019 MFI Artemis
Months post securitisation 8
Residual tenure (months) 16
Pool amortisation 40.7%
Cumulative Collection Ratio (CCR)! 98.9%
Average  3 month MCR^ 98.7%
Total overdues$ 0.5%
Cash collateral as a % of future payouts 11.5%
Cash collateral utilisation (as % of initial) 1.4%
Threshold collection ratio* 69.4%
!CCR = {Total collections in the pool/(Total billings + opening overdues at the time of securitisation)}
^MCR = Monthly collections in the pool / Monthly billings
$Total overdues = (Total overdues in the pool expressed as a percentage of initial pool principal)
*The minimum CCR required on a pool's future cash flows, to be able to service the investor payouts on time.

Key Rating Assumptions
CRISIL has analysed the collection and delinquency performance as well as moratorium policies of the investor for Asirvad-originated securitisation transactions until April 2020 payout for evaluating this transaction. CRISIL has also evaluated the performance reports of Asirvad's various securitisation transactions. For this pool, collections are gradually expected to increase in the 6 months in the post-moratorium phase. The base case peak shortfall is expected to be in the range of 6.0% to 8.0% of pool cash flows.

Pool Performance Summary (as after April 2020 payouts)

Capacity

Counterparty Name

Counterparty Rating/ Track record

Effect on credit ratings in case of non-performance

Originator

Asirvad

Rated 'CRISIL AA-/CRISIL PP-MLD AA-r/Stable/CRISIL A1+'

No effect.

Servicer

Asirvad.

Rated 'CRISIL AA-/CRISIL PP-MLD AA-r/Stable/CRISIL A1+

Significant effect, because of potential change in servicing quality and replacement costs associated, if the servicer is changed. 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

ICICI Bank Limited

Rated 'CRISIL AAA/CRISIL AA+/Stable

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

Collateral in the form of Fixed Deposit

RBL Bank Limited

Not rated by CRISIL

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

Trustee

CTL

Adequate past track record

Negligible effect. Can be replaced at minimal cost.


About the Originator
Asirvad Microfinance Limited, a non-banking finance company microfinance institution, is a majority owned subsidiary of Manappuram Finance Limited (MAFIL). The company was set up by current managing director, Mr S V Raja Vaidyanathan, in 2007. MAFIL acquired stake in Asirvad in February 2015, which it subsequently increased to 93.33% in March 2019. Asirvad had 1,042 branches across 329 districts in 22 states as on December 31, 2019.
 
Asirvad reported profit after tax (PAT) of Rs 133 crore on total income of Rs 677 crore in fiscal 2019. The profit was Rs 175 crore on total income of Rs 699 crore in the first 9 months of fiscal 2020. Loan portfolio outstanding increased to Rs 5,013 crore as on December 31, 2019, from Rs 3,841 crore as on March 31, 2019, and Rs 2,438 crore as on March 31, 2018.

Past rated pools
CRISIL has ratings outstanding on 11 PTC transactions originated by Asirvad. CRISIL is receiving monthly payout reports pertaining to these transactions.
Key Financial Indicators
As On/For the Period Ended Unit December 2019* March 2019* March 2018*
Total managed assets Rs. Crore 5,597 4,558 2,717
Total income Rs. Crore 699 677 470
Gross NPA % 1.1 0.48 1.73
Adjusted gearing  Times 4.9 4.9 10.3
Profit after tax Rs. Crore 175 133 (10)
Return on managed assets % 4.6 3.6 (0.4)
*as per Ind-As

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
Rating &		 Initial Credit collateral (Rs Cr)
Series A PTCs 77.71 06-Sep-19 20-Aug-21 9.60% CRISIL A- (SO)/Watch Negative 5.12
#Indicates door to door tenure factoring in the expected 3 month extension in maturity due to granting of moratorium by the investor. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option
& Series A PTC-holders are entitled to receive promised interest and principal on a monthly basis. Due to the investor extending the moratorium to the underlying borrowers, the interest and principal are both expected on a monthly basis for the May ' June 2020 payouts.
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
Series A PTCs LT  42.26 CRISIL A- (SO)/Watch Negative 11-03-20 CRISIL A (SO) / Watch Negative 22-11-19 CRISIL A (SO)          
            23-08-19 Provisional CRISIL A (SO)          
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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