Rating Rationale
November 13, 2019 | Mumbai
Venus Trust June 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 Crore)		 Original Tenure (Months) Credit Collateral (Rs Crore) Ratings Rating Action
Venus Trust June 2019 Series A PTCs 1,089.86 51 61.07 CRISIL AAA (SO) Converted from Provisional Rating to Final Raing
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A Pass-Through Certificates (PTCs) issued by 'Venus Trust June 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)'.
 
CRISIL has received the final legal documents executed for this transaction. These executed documents are in line with terms of the transaction when provisional rating/credit opinion was assigned. Hence, CRISIL has converted the provisional rating/credit opinion to a final rating/credit opinion.
 
Please click on the following link for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' ratings
 
As required, CRISIL has received the following final executed legal documents and other documents relevant to the transaction:
 
Legal documents

  • Trust deed
  • Deed of assignment
  • FLCF Guarantee
  • Power of attorney

Other documents

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

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 assigned the loan pool to 'Venus Trust June 2019', a trust settled by IDBI Trusteeship Services Limited (ITSL), which issued 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 at the time of securitization is as below:

  • Internal credit support in the form of scheduled EIS at the time of securitisation assuming zero prepayments aggregating Rs 70.08 crore (6.4% of initial pool principal)
  • External credit enhancement of Rs 61.07 crore (5.6% of initial 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 61.07 crore (5.6% of initial pool principal) provides external credit support to Series A PTCs. The PTCs also enjoy internal credit support through scheduled EIS (at the time of securitisation, assuming zero prepayment) aggregating Rs 70.08 crore (6.4% of initial pool principal)
  • Diversification and seasoning profile of contracts
  • As of cut-off date, there were over 17,000 contracts in the pool, having a weighted average net seasoning of 14.9 months. This has led to 36.2% of disbursed principal being amortised prior to securitisation.
Constraining Factors
  • Mild geographic concentration
    • As of cut-off date, 39.3% of the pool principal is from contracts that were originated in the top 3 states
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 14.9 months as of cut-off date. Contracts in the pool are also mildly geographically concentrated with the top 3 states accounting for 39.3% of pool principal as of cut-off date. The average ticket size as of cut-off date for contracts in the pool is Rs 10.0 lakh, with a weighted average loan-to-value ratio (at sanction) of 90.9% as of cut-off date. The weighted average interest rate for contracts in the pool is 12.8% as of cut-off date. All contracts were current on payment as of the pool cut-off date (May 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 May 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 1.5% for CV portfolio and 1.8% for CE portfolio as of May 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 HDFC Bank Rated 'CRISIL AA+/CRISIL AAA/Stable' Negligible effect. Account bank can be changed without impacting the rating.
Credit Collateral in the form of Fixed Deposit HDFC Bank Rated 'CRISIL AA+/CRISIL AAA/Stable' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Credit Collateral in the form of Corporate Guarantee HDBFSL Rated 'CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+' Significant effect. Rating on PTCs is directly linked to CRISIL's view on long term credit risk profile of guarantee provider.
Trustee ITSL Adequate track record Negligible effect. Can be replaced at minimal cost.
 
About the Originator
HDB Finance was set up as an non-banking finance 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 HDB Finance's equity shares.  On the same date, the company had 1350 branches across 961 cities in India. Apart from the lending business, HDB Finance is also engaged in the 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 that undertake collection services, back office and sales support functions under a contract with HDFC Bank.
 
HDB Finance reported a profit after tax of Rs 1153 crore on a total income of Rs 8724 crore for fiscal 2019 as against Rs 933 crore and Rs 7027 crore, respectively, in fiscal 2018.
 
Liquidity Strong
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
Downward
* Credit enhancement (both internal and external credit enhancement) falling below 2 times the estimated base case 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
 
Previously rated transactions
CRISIL has ratings outstanding on 6 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 crore 56540.32 45446
Total income Rs crore 8724 7027
Profit after tax Rs crore 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 (%) (annualised) Outstanding
Ratings		 Credit collateral (Rs Cr)^
Series A PTCs 1,089.86 29-Jun-19 20-Sep-23 7.78% CRISIL AAA (SO)$ 61.07
#Indicates door to door tenure of 51 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 at the time of securitisation amounting to Rs aggregating Rs 70.08 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  1089.86 CRISIL AAA (SO)   17-07-19  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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