Rating Rationale
July 28, 2020 | Mumbai
Northern Arc 2019 GL Aurum
(Originator: Muthoottu Mini Financiers Limited)
'CRISIL A1 (SO)' converted from provisional rating to final rating for Series A1 PTCs; Rating continues on 'Watch Developing'
 
Rating Action
Trust Name Details Amount Rated
(Rs Cr)		 Pool Principal (Rs Cr) Original Tenure (Months) # Credit Collateral (Rs Cr) Rating Rating action
Northern Arc 2019 GL Aurum Series A1 PTCs 51.59 56.69 9 4.93 CRISIL A1 (SO) Converted from Provisional Rating to Final Rating/Continues on 'Rating Watch with Developing Implications'
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
#Indicates door to door tenure from pool cut-off date. Actual tenure will depend on the level of prepayments in the pool, extension due to moratorium and exercise of the clean-up call option
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A1 pass-through certificates (PTCs) issued by 'Northern Arc 2019 GL Aurum' under a securitisation transaction originated by Muthoottu Mini Financiers Limited (MMFL) to final rating of 'CRISIL A1 (SO)' and it continues to be on 'Rating Watch with Developing Implications'.
 
CRISIL has received the legal documents executed for this transaction at the time issuance of the PTCs and other required documents as listed below. The executed documents are in line with terms of the transaction when provisional rating was assigned. Hence, CRISIL has converted the provisional rating to a final rating.
 
Executed legal documents received

  • Trust Deed     
  • Deed of assignment   
  • Accounts Agreement
  • Servicing Agreement
  • Power of Attorney

Other Documents received

  • Legal Opinion
  • Auditor's Certificate
  • Information Memorandum
  • Seller's Representations and Warranties
  • Trustee Letter  

Please click on the following link for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' ratings
 
This transaction is backed by a pool of receivables from gold loans originated by MMFL. The ratings are based on credit support available to instruments, credit quality of the underlying pool of receivables, MMFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with flow back Excess Interest Spread (EIS)' structure. The trust will issue Series A1 PTCs in exchange of a purchase consideration equal to 91.0%, of the pool principal at the time of securitisation, MMFL assigned the loan pool to 'Northern Arc 2019 GL Aurum', a trust settled by Catalyst Trusteeship Limited (CTL), which issued instruments to investors. Investor payouts for Series A1 PTCs are supported by credit collateral and subordination of excess interest spread (EIS).
 
The Trustee has confirmed that repayment moratorium was granted to several underlying borrowers in the securitised pool backing this transaction for the three months ended May 2020, after the moratorium on term loans was announced by the RBI. This has been extended to August 2020. As per the terms of the moratoirum, PTC payout schedule was to undergo revision to reflect the changed repayment schedule of the borrowers, and the tenure of the PTCs was to be extended correspondingly, in line with the pass-through nature of the instruments. During the moratroium, interest and principal payments are expected and to be paid to the PTC investors, subject to availability of cash flows. Credit enhancement was not to be utilised to meet any shortfalls during the moratorium period. Executed amendment documents pertaining to these changes are expected post the complete lifting of the lockdown.
 
Total credit support available in the transaction structure is as below:

  • Internal credit support in the form of scheduled cashflow subordination aggregating to Rs 7.33 Cr which includes Rs 5.10 crore (9.0% of initial pool principal) of overcollateralization for Series A1 PTCs
  • External credit-cum-liquidity collateral of Rs 4.93 crore (8.7% of initial pool principal) also provides support to Series A1 PTCs

The operations of the servicer, including collection activities, returning to normalcy; collection efficiency for the underlying pool after the expiry of the moratorium and asset quality remain key monitorables.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Internal and external credit enhancement
    • External credit collateral in the structure amounting to Rs 4.93 crore (8.7% of initial pool principal) and internal credit enhancement from scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 7.33 crore (12.9% of initial pool principal) - including Rs 5.10 crore of principal overcollateralization (9.0% of initial pool principal) for Series A1 PTCs. 
       
  • Strong collections from the pool pre-moratorium annoucement and investor approval for revision of PTC schedule till September 2020 payouts post announcement of moratorium
  • As of April 2020 payouts, the cumulative collection ratio! (CCR) was 100.0% against the TCR* of 84.2% and 0+ OD stood at 0.0% of the initial pool principal. While collection efficiencies (based on original billing schedule) have declined since then, interest and principal payouts were not expected by the investor till September 2020.
Constraining Factors
 
Impact of Covid-19 pandemic
  • Uncertainty regarding the economic impact of the Covid-19 pandemic and the magnitude of resultant asset quality implications on asset classes such as gold loans
  • The operations of the servicer, including collection activities, returning to normalcy; collection efficiency for the underlying pool after the expiry of the moratorium and asset quality remain key monitorables.
Rating Sensitivity factors
Upward factors
  • Credit collateral (internal and external combined) above 2.1 times the estimated base case loss Weaker than expected
  • A sharp upgrade in the rating of the servicer/originator
Downward factors
  • Credit collateral (internal and external combined) falling below 1.5 times the estimated base case loss
  • Weaker than expected performance of the pool in terms of scheduled collections
  • Material deviation of recovery from delinquent contracts as observed from the portfolio
  • A sharp downgrade in the rating of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating
Liquidity: Strong
The credit collateral available in the transaction is Rs 4.93 crore (8.7% of pool principal). The enhancement is in the form of fixed deposit placed with DCB Bank (Rated CRISIL AA-/Stable/CRISIL A1+'. The enhencement fully covers promised interest payouts for all the months even with no collections from underlying receivables.
 
These aspects have been factored by CRISIL in its rating analysis
 
About the pool
The pool cash flow is securitised and comprises receivables from gold loans originated by MMFL. At the time of securitisation, the pool has a weighted average net seasoning of 3.0 months, with Tamil Nadu, Andhra Pradesh and Karnataka accounting for 81.9% of the pool principal outstanding. Average ticket size of the pool is Rs 47,483. All contracts in the pool are current as of cut-off date.
 

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL has analysed moving portfolio delinquency and static pool information (with information on 0+ overdues) for gold loan portfolio provided by MMFL for originations in the period May 2017 to November 2019 (with performance data till November 2019). The 90+ dpd for the gold loan portfolio of MMFL is 2.1% as of June 2019.

CRISIL has also factored in pool specific characteristics and estimated the base case shortfalls in the pool by the maturity of the transaction in the range of 3.0% to 5.0 % of pool principal.
  • Based on its assessment of MMFL's short-term credit risk profile, CRISIL has factored in the risk arising out of commingling of cash flows.
  • 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 MMFL 'Not rated by CRISIL' No effect.
Servicer

 		 MMFL Not rated by CRISIL' Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL does not envisage the need for replacement. Under certain circumstances, the trust or investor has right to change the servicer with an intimation to CRISIL.
Collection and Payout Account Bank DCB Bank Rated 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed deposit DCB Bank Rated 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee CTL Adequate past track record Negligible effect. Can be replaced at minimal cost.
Note:
!CCR = {Total collections in the pool/(Total billings + opening overdues at the time of securitisation)}
*TCR = The minimum CCR required on a pool's future cash flows, to be able to service the investor payouts on time.
 
About the originator
MMFL is a non-deposit taking systemically important NBFC in the gold loan sector lending money against the pledge of household gold jewellery ('Gold Loans') in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Haryana, Maharashtra, Delhi and Goa and the union territory of Puducherry.
 
The company also started its microfinance loan segment in 2017 and provides unsecured loans to joint liability group of women customers (minimum of 5 women in one group) who require funds to carry out their business activities through some of its branches in Kerala.
 
As on September 30, 2019 the AUM (Excluding securitization) of the company stood at Rs 1,658 crore (Rs 1385 crore as on March 31, 2019). The AUM (including securitization) stood at Rs 1,741 crore and Rs 1,510 crore respectively as on September 30, 2019 and March 31, 2019. The company has a network of 772 branches and employs around 3200 people as on date spread out over various states in India ' Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Haryana, Maharashtra, Delhi and Goa and the union territory of Puducherry. It has provided loans having a tenor of 9 months to about 3,70,000 accounts worth Rs 1,351 crore. This forms about 98% of the company's total loans and advances as on March 31, 2019. Of the total portfolio outstanding as of June 30, 2019, the company has about 43% in the ticket size bracket of less than Rs 50,000, followed by 39% in the ticket size bracket of Rs 50,000 to Rs 1,00,000 and 12% in the ticket size bracket of Rs 1,00,000 to Rs 2,00,000. It has provided loans to about 25,749 accounts worth Rs 32.15 crore.as on March 31, 2019.
 
Past rated pools
CRISIL has ratings outstanding under one PTC transaction originated by MMFL.
Key Financial Indicators
As on / for the period ended March 31   2019 2018
Total Assets Rs crore 1,836 1,984
Total income (net of interest expenses) Rs crore 133.5 140.0
Profit after tax Rs crore 20.96 14.25
Gross NPA % 2.16 2.00
Return on managed assets (annualized) % 1.06 0.66
Adjusted gearing Times 2.12 2.22
Including unsecured promoter loans which were subsequently converted to equity

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 Opinions		 Complexity Level Credit collateral
(Rs Cr) ^
Series A1 PTCs 51.59 21-Jan-20 06-Jan-21 10.25% CRISIL A1 (SO)/Watch Developing Highly
Complex		 4.93
# Indicates door to door tenure from pool cut-off date. Actual tenure will depend on the level of prepayments in the pool, extension due to moratorium and exercise of the clean-up call option
^ Additional credit support includes Rs 7.33 crore in the form of scheduled cashflow subordination for Series A1 PTCs ' including Rs 5.10 crore of principal overcollateralisation
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 A1 PTCs ST 5.33 CRISIL A1 (SO)/Watch Developing 28-05-20 Provisional CRISIL A1 (SO)/Watch Developing              
        12-02-20 Provisional CRISIL A1 (SO)              
All amounts are in Rs.Cr.
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Understanding CRISILs Ratings and Rating Scales

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