Rating Rationale
June 12, 2019 | Mumbai
Venus Trust March 2019
(Originator: HDB Financial Services Limited)
'CRISIL AAA (SO)' Converted from Provisional Rating to Final Rating for Series A PTCs 
 
Rating Action
Trust Name Instrument
Details		 Amount Rated (Rs.Cr) Outstanding Principal*
(Rs.Cr)		 Original Tenure (Months) Credit Collateral (Rs.Cr) Ratings Rating Action
Venus Trust March 2019 Series A PTCs 402.15 373.81 53 26.82 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*After May 2019 payouts
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A Pass-Through Certificates (PTCs) issued by 'Venus Trust March 2019' under a securitisation transaction originated by HDB Financial Services Limited (HDBFSL; rated 'CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+') to final rating of 'CRISIL AAA (SO)'. 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.
 
As required, CRISIL has received the following final executed documents:
 
Legal Documents: 

  • Trust deed
  • Deed of assignment
  • Power of attorney

Other Documents: 

  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Originator's representations and warranties letter

For detailed information on CRISIL's policy on provisional ratings, click here: Revision in CRISIL policy for assigning 'provisional' ratings.
 
The 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 March 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 33.71 crore (8.4% of pool principal)
  • External credit enhancement of Rs 26.82 crore (6.7% of pool principal) is in the form of a Fixed Deposit

Series A PTC holders are entitled to receive timely interest and timely principal on a monthly basis.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Internal and external credit enhancement
    • A credit collateral of Rs 26.82 crore (6.7% 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 33.71 crore (8.4% of pool principal)
  • Seasoning profile of contracts in the pool
  • Contracts in the pool have a weighted average net seasoning of 9.8 months. This has led to 25.3% of disbursed principal being amortised prior to securitisation.
 Constraining Factors
  • Geographic concentration
54.4% of the pool principal is from contracts that were originated in the top 3 states

Liquidity Position
The credit cum liquidity enhancement available in the transaction is 26.82 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 months of promised principal and interest payouts even with no collections from underlying receivables.

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 9.8 months. Contracts in the pool are also geographically concentrated with the top 3 states accounting for 54.4% of pool principal. The average ticket size for contracts in the pool is Rs 10.9 lakh, with a weighted average loan-to-value ratio of 84.5% at the time of loan sanction. The weighted average interest rate for contracts in the pool is 13.0%. All contracts were current on payment as of the pool cut-off date (February 28, 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 Feb 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 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 HDFC Bank Rated '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 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.

Previously Rated Transactions
CRISIL has ratings outstanding on 4 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 2018 2017
Total Assets Rs Cr 44754 33456
Total income Rs Cr 7062 5715
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
Ratings		 Credit collateral (Rs Cr)^
Series A PTCs 402.15 30-Mar-19 20-Aug-23 7.60% CRISIL AAA (SO)$ 26.82
#Indicates door to door tenure of 53 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 33.71 crore also provides credit support to PTCs.
$Series A PTC investors are entitled to receive timely interest and timely principal.
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  373.81  CRISIL AAA (SO)  23-04-19  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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