Rating Rationale
February 28, 2020 | Mumbai
Innovation Trust XXX 
(Originator: Indiabulls Housing Finance Limited)
 'CRISIL AA (SO)' for Series A PTCs and 'CRISIL AA (SO)' for Series B  PTCs converted from Provisional Ratings to Final Ratings 
 
Rating Action
Transaction Details Amount Rated
(Rs Crore)
Pool
Principal
(Rs Crore)
Original Tenure (Months)# Credit Collateral (Rs Crore) Ratings/ Credit Opinion Rating Action
Innovation Trust XXX Series A PTCs 225.18 481.16 93 101.04 CRISIL AA (SO) Converted from Provisional Rating to Final Rating
Series B PTCs 255.98 239 CRISIL AA (SO)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
#Indicates door-to-door tenure; actual tenure will depend on the level of prepayments in the pool, exercise of clean-up call option and the extent of shortfalls
Detailed Rationale

CRISIL has converted its provisonal rating assigned to Series A pass-through certificates (PTCs) and Series B PTCs issued by 'Innovation Trust XXX' to final rating of 'CRISIL AA (SO)'. The nomenclature for the instrument was mentioned as 'Series A1 PTCs' and 'Series A2 PTCs' at the time of giving the provisional rating, however it is 'Series A PTCs' and 'Series B PTCs', as per the executed documents. 
 
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. The FLCF providers have represented that the FCLF amount of Rs. 101.04 cr. shall be either in the form of FD maintained with any entity rated CRISIL A1+ or  in units of liquid funds carrying a credit quality rating (CQR) of CRISIL AAmfs or higher.
 
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 documnets

  • Deed of Assignment     
  • Trust Deed  
  • Collection and Servicing Agency Agreement- Indiabulls Commercial Credit Limited
  • Collection and Servicing Agency Agreement- Indiabulls Housing Finance Limited
  • Credit Facility Agreement
  • Amendment to  Collection and Servicing Agency Agreement- Indiabulls Commercial Credit Limited
  • Amendment to Collection and Servicing Agency Agreement- Indiabulls Housing Finance Limited 
  • Amendment to Trust Deed   
  • Power of Attorney

Other documents 

  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Originator's representations and warranties letter
  • Representation by FLCF providers regarding the form of FLCF

The pool is backed by loan against property (LAP) and home loan (HL) receivables originated by Indiabulls Housing Finance Limited (IBHFL; 'CRISIL AA+/Negative/CRISIL A1+') and Indiabulls Commercial Credit Limited (ICCL; 'CRISIL AA+/Negative/CRISIL A1+'). The rating on the PTCs is based on the credit quality of pool cash flow, IBFHL and ICCL's origination and servicing capabilities, credit enhancement in the structure, and payment mechanism and soundness of the transaction's legal structure.
 
The transaction has a 'par with turbo-amortising' structure. Series A and Series B PTC holders are entitled to receive timely interest and timely principal on a monthly basis. IBHFL will assign the pool to Innovation Trust XXX, settled by Catalyst Trusteeship Limited, which will issue the PTCs to investors. The PTCs are supported by the cash collateral and excess interest spread. The total credit support available in the transaction is as below:

  • Internal credit support in the form of scheduled Excess Interest Spread (EIS), aggregating Rs 77.81 crore (16.2% of pool principal) assuming no prepayment and interest rate fluctuation
  • External credit-cum-liquidity collateral of Rs. 101.04 crore (21.0% of pool principal) to be provided by IBHFL.
Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 101.04 Cr (21.0% of the pool principal) provides credit support to Series A and Series B PTCs. The PTCs also benefit from scheduled excess interest spread (EIS) aggregating Rs 77.81 Cr (16.2% of pool principal) assuming no prepayment and interest rate fluctuation. 
       
  • Seasoning profile
    • Contracts in the underlying pool backing this transaction have a weighted average seasoning of 24.8 months and a principal amortisation of 35.3% prior to securitisation.
 Constraining Factors
  • Granularity and borrower concentration
    • The transaction is backed by a pool of 766 loan contracts from 529 unique borrowers, 29 of whom have principal outstanding amounts greater than 1% (each) of the total pool principal.
  • Basis Risk
    • There is basis risk in the transaction as pool yield is floating and linked to originator's prime lending rate whereas the investor's yield is floating and linked to SBI's MCLR
 CRISIL has adequately factored these aspects in its rating analysis
 
Liquidity: Strong
The credit cum liquidity enhancement available in the transaction is Rs 101.04 Cr (21.0% of pool principal)  which is in the form of Liquid Fund placed with Nippon India Liquid Fund (Rated' CRISIL AAAmfs') . The enhancement is sufficient to cover 6 months of principal and interest payouts promised to the investors even with no collections from underlying loan receivables
 
Rating sensitivities
 
Upward factors
  • Credit enhancement (internal and external combined) falling below 3.0 times the estimated base shortfalls on the residual pool cash flows
Downward factors
  • Credit enhancement (internal and external combined) falling below 2.0 times the estimated base shortfalls on the residual pool cash flows
  • Deterioration in the credit quality of the servicers /originators
  • Non-adherence to the key transaction terms envisaged at the time of the rating

About the Pool
The pool consists of LAP and HL contracts. The weighted average seasoning of the pool is 24.8 months, and the pool is moderately concentrated geographically, with the top three states accounting for 55.4% of the pool principal. However, the pool has high customer concentration with top 10 customers accounting for 29.7% of the pool principal. All the contracts in the pool are current on payments as on the pool cut-off date, with a weighted average loan-to-value ratio of 46.9% and average ticket size of Rs. 0.97 crores.

Key Rating Assumptions
To assess the base case collection shortfalls for the transaction, CRISIL has analysed the performance of static pools of loans against property originated from April 2007 till March 2018 and their performance till March 2019. CRISIL has also analysed the portfolio and performance of rated securitisation transactions while arriving at base case loss scenario.
 
There is a basis risk in the transaction. The pool consists of loans at a floating rate of interest linked to prime lending rate of IBFHL and ICCL, while the investor yield is floating and linked to SBI's MCLR. At present, there is a comfortable gap between the pool yield and the yield promised to the investor. However, during the tenure of the transaction, adverse movement in prime lending rate of the originator compared to SBI's MCLR may compress the asset side cash flows in relation to the liability side cash flows, thus leading to basis risk. CRISIL has factored this aspect in its analysis by assuming various interest rate scenarios.
 
Borrower concentration is high in the pool and 32 borrowers (38 contracts) account for 'Ã''Ã'Â¥1% (each) of overall pool principal. CRISIL has adequately factored this concentration risk in its analysis. CRISIL's credit ratings/internal views on these entities were also considered in the analysis.
 
Based on the above analysis, past experience in rating similar pools, industry benchmarking, and factoring in the strengths and weaknesses of the pool, CRISIL has estimated the base case peak shortfalls to be in the range of 4 to 6 per cent of the pool principal. CRISIL has assumed a stressed monthly prepayment rate of 1.5 to 2.5 per cent in its analysis. 
 
Counterparty Details

Capacity

Counterparty Name

Counterparty

Rating/Track record

Effect on credit ratings in case of non-performance

Originator and seller IBHFL & ICCL Rated 'CRISIL AA+/ Negative/CRISIL A1+'  
No effect.
 
Servicer IBHFL & ICCL Rated 'CRISIL AA+/ Negative/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 ICICI Bank Rated 'CRISIL AAA/Stable' Negligible effect. Account bank can be changed without impacting the rating.
Credit Collateral in the form of Liquid Fund Nippon India Liquid Fund Rated' CRISIL AAAmfs' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee CTL Adequate track record Negligible effect. Can be replaced at minimal cost.

About the Originator
IBHFL is one the larger housing financing companies in India. In its current legal form, its origins date back to April 1, 2012 when Indiabulls Financial Services Ltd was reverse-merged with it. The process was completed on March 8, 2013, following the Delhi High Court's approval on December 12, 2012. After the merger, IBHFL continues to operate as a housing finance company registered with the National Housing Bank. The company, along with its subsidiary Indiabulls Commercial Credit Ltd (ICCL) focuses on asset classes such as mortgages and commercial real estate. As on June 30, 2019, the promoter group held 21.5% stake in the company.

During first quarter of fiscal 2020, IBHFL had a profit after tax (PAT) of Rs 802 crore on a total income of Rs 3,886 crore, compared with a PAT of Rs 1055 crore and total income of Rs 4,073 crore during same period previous fiscal.

ICCL was incorporated in 2006 and is a wholly owned subsidiary of IBHFL, with total assets of Rs 17,106 crore as on March 31, 2019. ICCL is a Non-Banking Finance Company (NBFC), registered with Reserve Bank of India (RBI). The company, continues to focus on asset classes such as LAP and Commercial Real Estate. As of March 31, 2019 LAP constituted 49% of the book and remaining 51% was Commercial real Estate.

For the fiscal 2019, ICCL had a profit after tax (PAT) of Rs 323.0 crore on a total income of Rs 1,761 crore as against a PAT of Rs 269 crore on a total income of Rs 928 crore for the previous fiscal.

Past Rated Pools
CRISIL has ratings outstanding on nine transactions originated by IBHFL. The collection efficiency for all the pools has remained robust till date. CRISIL is receiving monthly performance reports pertaining to all CRISIL-rated IBHFL originated securitisation transactions.
Key Financial Indicators
Particulars Unit 2019 2018
Total Assets Rs. Cr. 17,106 13,246
Total income Rs. Cr. 1,761 656
Profit After Tax Rs. Cr. 323 183
Gross NPA % 1.3 0.62
Return on average assets % 2.5 3.36

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 Crore)
Date of Allotment Maturity date# Coupon Rate (%) Outstanding
Rating
Credit cum liquidity Enhancement
(Rs Crore)&
Series A PTCs 225.18 31-Dec-19 22-Nov-39 11.10% CRISIL AA (SO) 101.04
Series B PTCs 255.98 31-Dec-19 22-Nov-39 11.60% CRISIL AA (SO)
*Floating ' linked to investor's MCLR
#Indicative maturity date
&additionally, scheduled excess interest spread, amounting to around Rs.77.81 crore (assuming zero prepayments and no basis risk) also provides credit support to the PTCs
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  225.18  CRISIL AA (SO) 08-01-20  Provisional CRISIL AA (SO)               
Series B PTCs  LT  255.98  CRISIL AA (SO)  08-01-20  Provisional CRISIL AA (SO)              
All amounts are in Rs.Cr.
 
Links to related criteria
CRISILs rating methodology for RMBS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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