Rating Rationale
April 10, 2019 | Mumbai
VENUS TRUST NOVEMBER 2018 SERIES 2
(Originator: HDB Financial Services Limited)
'CRISIL AAA (SO)' Converted from Provisional Rating to Final Rating for Series A PTCs  
 
Rating Action
Trust Name Details Amount Rated
(Rs Crore)		 Amount Outstanding (Rs Crore)^  Original Tenure (Months) Balance Tenure (Months)^ Credit Collateral (Rs Crore) Ratings/ Credit Opinion Rating Action
VENUS TRUST NOVEMBER 2018 SERIES 2 Series A PTCs 599.05 507.58 54 50 39.90  CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
^As after March 2019 payouts
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A PTCs to final ratings of 'CRISIL AAA (SO)'. The provisional ratings were assigned on December 11, 2018 to the PTCs issued by Venus Trust November 2018 Series 2. The pool is backed by CV and CE loan receivables originated by HDB Financial Services Ltd (HDBFSL; 'CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+'). The documents executed for the transaction are in line with the transaction terms at the time of assigning the provisional rating. CRISIL has therefore converted the provisional rating to final rating.
 
For detailed information on CRISIL's policy on provisional ratings, click here: Revision in CRISIL policy for assigning 'provisional' ratings
 
As required, CRISIL has received the following final documents:
 
Legal Documents

  • Trust deed
  • Assignment agreement
  • Power of attorney
  • Information memorandum
  • Guarantee deed
  • Legal opinion
  • Trustee letter
  • Auditor's certificate
  • Representations and warranties letter.
Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure at the time of securitisation
    • Credit collateral of Rs 39.90 crore (6.7% of the pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS aggregating Rs 43.92 crore (7.3% of pool principal) at the time of securitisation.
  • Moderate seasoning of contracts in the pool at the time of seccuritisation
    • The contracts in the pool have a weighted average seasoning of 12.6 months, and amortization of 29.3% as of the cut-off date
 Constraining Factors
  • Loan to value ratio of contracts in the pool at the time of securitisation
    • The 25.0% of the pool principal is from contracts whose loan-to-value at disbursement was greater than 90%. However, a borrower's propensity to default decreases with increasing amortisation and the resulting build-up of equity in their vehicle.
  • Presence of overdue contracts
As of pool cut-off date (October 31, 2018), 11.7% of the pool principal was comprised of contracts where interest and principal payments were overdue up to one month.

Liquidity Position
The credit cum liquidity enhancement available in the transaction is Rs. 39.90 crore (6.7% of initial pool principal) which is in the form of fixed deposit placed with HDFC Bank (Rated 'CRISIL AAA/CRISIL AA+/Stable'). At the time of securitisation, the enhancement fully covered one month of promised principal and interest payouts even with no collections from underlying receivables.

About the Pool
The pool cash flow is securitised and comprises receivables from CV and CE loans originated by HDBFSL. The pool has a weighted average net seasoning of 12.6 months. The pool has moderate geographical concentration with top 3 states accounting for 54.0% of the pool principal. Average ticket size of the pool is Rs 7.9 lakh with weighted average loan to value ratio of 83.9%. As on the cut-off date (October 31, 2018), 11.7% of the principal was comprised of contracts where interest and principal payments were overdue up to one month. CRISIL has adequately factored all these aspects in its rating analysis.

Key Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL has analysed the moving portfolio delinquency information on CV and CE asset class for performance from Apr-12 to Sep-18. CRISIL has also analysed the portfolio cuts based on Tenure, Asset type, State, etc. and compared the pool with the portfolio on these parameters.
 
1 year lagged 90+ delinquency is 1.4% for CV portfolio and 1.8% for CE portfolio as of Feb 2019. 1 year lagged delinquencies were at its peak at 4.4% for the CV business in Nov 2013 and at 7.7% for the CE business. However, the 1 year lagged 90+ delinquency has come down consistently in recent years.
 
CRISIL has also factored in pool-specific characteristics and estimated base-case peak shortfalls for this transaction to be in the range of 4% to 6% of pool cash flows. 
  • CRISIL has assumed a stressed monthly prepayment rate of 0.3 to 0.8% in its analysis.
  • CRISIL does not envisage any risk arising on account of commingling of cash flows since CRISIL's short term rating on the servicer is 'CRISIL 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 and seller HDBFSL Rated 'CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+'  
No effect.
 
Servicer HDBFSL Rated 'CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+' Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL given CRISIL's rating on the servicer). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank Citibank N.A Rated 'CRISIL AAA/Stable/ CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
First Loss Facility in the form of Fixed Deposit HDFC Bank Rated 'CRISIL AAA/CRISIL AA+/Stable' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee ITSL Adequate track record Negligible effect. Can be replaced at minimal cost.

About the Originator
HDBFS was set up as a non-bank financing company, by HDFC Bank in June 2007. The company began operations in fiscal 2008. As on March 31, 2018, HDFC Bank owned 95.9% of HDBFS's equity shares.  As on March 31, 2018 the company had 1165 branches across 831 cities in India. Apart from the lending business, HDBFS is also engaged in distribution of general and life insurance products for HDFC Ergo General Insurance Company and HDFC Standard Life Insurance Company, respectively. The company also runs BPO services (business process outsourcing) that undertakes collection services, back office and sales support functions under a contract with HDFC Bank.

HDBFS reported a profit after tax (PAT) of Rs 952 crore on a total income of Rs 7062 crore for fiscal 2018. For half year ended September 30, 2018, the company reported profits of Rs 526 crore on a total income of Rs 2577 crore compared to Rs 403 crore and Rs 2,228 crore respectively in the similar period of previous fiscal.

Past Rated Pools
CRISIL has  ratings outstanding on four transactions originated by HDBFSL. CRISIL is receiving monthly performance reports pertaining to the CRISIL-rated HDBFSL originated securitisation transactions.
Key Financial Indicators
As on/for the period ended March 31 Unit 2018 2017
Total Assets Rs. Cr. 44,754 33,456
Total income Rs. Cr. 7,062 5,715
Profit after tax Rs. Cr. 952 684
Gross NPA % 1.58 1.45
Overall capital adequacy ratio  % 17.9 20.8
Return on average assets % 2.4 2.4

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 (%) (Annualised) Outstanding
Rating		 Credit cum liquidity Enhancement (Rs Cr.)
Series A PTCs 599.05 06-Dec-18 20-May-23 7.83% CRISIL AAA (SO) 39.90^
*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 43.92 crore in form of scheduled EIS (assuming zero prepayments) at the time of securitisation Series A PTC holders are entitled to receive timely interest and timely principal on a monthly basis
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs  LT  507.58  CRISIL AAA (SO)    --  11-12-18  Provisional CRISIL AAA (SO)    --   --  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs rating methodology for ABS transactions
CRISILs rating methodology for RMBS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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