Rating Rationale
January 10, 2020 | Mumbai
Venus Trust December 2019
(Originator: HDB Financial Services Limited)
'Provisional CRISIL AAA (SO)' assigned to Series A PTCs 
 
Rating Action
Trust Name Instrument
Details		 Amount Rated (Rs Cr) Pool Principal
(Rs Cr)		 Original Tenure (Months) Credit Collateral (Rs Cr) Ratings @ Rating Action
Venus Trust December 2019 Series A PTCs 447.90 447.90 50 36.46 Provisional CRISIL AAA (SO) Provisional Rating Assigned
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, Securities and Exchange Board of India (SEBI) directive, 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/ provisional/ in-principle ratings assigned by CRAs'.
Detailed Rationale

CRISIL has assigned its 'Provisional CRISIL AAA (SO)' ratings to Series A Pass-Through Certificates (PTCs) issued by 'Venus Trust December 2019' under a securitisation transaction originated by HDB Financial Services Limited (HDBFSL; rated 'CRISIL AAA/PP-MLD AAAr/Stable/CRISIL A1+').
 
This transaction is backed by receivables from a pool of commercial vehicle and construction equipment loans originated by HDBFSL. The rating / credit opinion is based on the credit support available to the PTCs, credit quality of the underlying receivables, HDBFSL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread' structure. In exchange for a purchase consideration amounting to future principal outstanding as on the pool cut-off date, HDBFSL will assign the loan pool to 'Venus Trust December 2019', a trust settled by IDBI Trusteeship Services Limited (ITSL), which will then issue instruments to investors. Investor payouts for Series A PTCs are supported by credit collateral and excess interest spread (EIS).
 
The total credit support available in the transaction is as below:

  • Internal credit support in the form of scheduled EIS assuming zero prepayments aggregating Rs 41.87 crore (9.3% of pool principal)
  • External credit enhancement of Rs 36.46 crore (8.1% of pool principal) is in the form of a Fixed Deposit

Series A PTC holders are entitled to receive timely interest on a monthly basis, while the principal payment is promised on an ultimate basis
 
This is a 'Provisional' rating and will be converted into a 'Final' rating on receipt of the following documents:

  • Trust deed
  • Deed of assignment
  • Power of attorney
  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Originator's representations and warranties letter
  • Guarantee Document

Additional documents executed for the transaction, if any, should also be provided. A rating rationale/report indicating the conversion of the 'Provisional' rating to 'Final' rating post receipt of all the required final legal documentation will be published on the CRISIL website.
 
Please click on the link below for detailed information on CRISIL's policy on provisional ratings/credit opinions:
Revision in CRISIL policy for assigning 'Provisional' rating.

Key Rating Drivers & Detailed Description

Supporting Factors

*    Internal and external credit enhancement

o    A credit collateral of Rs 36.46 crore (8.1% of pool principal) provides external credit support to Series A PTCs. The PTCs also enjoy internal credit support through scheduled EIS (assuming zero prepayment) aggregating Rs 41.87 crore (9.3% of pool principal)

*    Sea soning profile of contracts

o    The weighted average net seasoning of contracts in the pool is 10.7 months. This has led to 26.4% of disbursed principal being amortised prior to securitisation.

 

Constraining Factors

*    Mild geographic concentration

o    43.8% of the pool principal is from contracts that were originated in the top 3 states

 

Liquidity: Strong

The credit collateral available in the transaction structure is Rs 36.46 crore (8.1% of pool principal) in the form of fixed deposits. The credit collateral fully covers more than 12 month of interest payouts even with no collections from the underlying loan pool.

 

Rating sensitivity factors

Downward factor:

  • Credit enhancement falling below 2.0 times of the estimated base case shortfalls for Series A PTCs
  • 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 receivables from pool of commercial vehicle and construction equipment loan contracts. Contracts in the pool have a good seasoning profile as evidenced by a weighted average net seasoning of 10.7 months. Contracts in the pool are also mildly geographically concentrated with the top 3 states accounting for 43.8% of pool principal. The average ticket size for contracts in the pool is Rs 7.5 lakh, with a weighted average loan-to-value ratio of 86.9% at the time of loan sanction. The weighted average interest rate for contracts in the pool is 13.5%. All contracts were current on payment as of the pool cut-off date (October 31, 2019). CRISIL has adequately factored all these aspects in its rating analysis.



Rating Assumptions
To assess the base case collection shortfalls for this ABS transaction CRISIL has analysed the moving portfolio delinquency performance in HDBFSL's CV and CE loan portfolios from Apr 2012 to Oct 2019. 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 2.9% for CV portfolio and 2.8% for CE portfolio as of Oct 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 3 to 5% 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 HSBC Bank Not rated by CRISIL Negligible effect. Account bank can be changed without impacting the rating.
Credit Collateral in the form of Fixed Deposit Axis Bank Rated '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 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, 2019, HDFC Bank owned 95.9% of HDBFS's equity shares.  As on March 31, 2019 the company had 1350 branches across 961 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 1153 crore on a total income of Rs 8724 crore for fiscal 2019 as against PAT of Rs 933 crore on a total income of Rs 7027 crore in fiscal 2018.

Previously rated transactions
CRISIL has ratings outstanding on 7 ABS transactions originated by HDBFSL. CRISIL is receiving monthly performance reports pertaining to these transactions.
Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Total Assets Rs. Cr. 56540 45446
Total income Rs. Cr. 8724 7027
Profit after tax Rs. Cr. 1153 933
Gross NPA % 1.78 1.58
Overall capital adequacy ratio  % 17.9 18
Return on average assets % 2.3 2.3
 

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 collateral (Rs Cr) ^
Series A PTCs 447.90 26-Dec-19 20-Feb-24 6.72% Provisional CRISIL AAA (SO) $ 36.46
# Indicates door to door tenure of 50 months from allotment date. Actual tenure of instruments will depend on the level of prepayments in the loan pool, and possible exercise of the clean-up call option.
^ In addition, scheduled EIS amounting to Rs aggregating Rs 41.87 crore also provides credit support to PTCs.
$ Series A PTC investors are entitled to receive timely interest on a monthly basis, while the principal payment is promised on an ultimate basis.
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  447.90 Provisional CRISIL AAA (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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