Sansar April 2024 Trust

(Originator: Shriram Finance Limited)

'Provisional CRISIL AAA (SO)' assigned to Series A1 PTCs

Rating Action

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings

1 crore = 10 million

Refer to annexure for Details of Instruments

*The instrument tenure includes a replenishment period of up to 12 months. The instrument’s legal final maturity date will correspond to the maturity date of the longest loan in the pool at the end of replenishment period, but will be not later than 60 months from the date of issuance.

@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures and is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015 directive ‘Standardizing the term, rating symbol, and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies' by Securities and Exchange Board of India (SEBI) and April 27, 2021 circular ‘Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments’ by SEBI

Detailed Rationale

CRISIL Ratings has assigned its ‘Provisional CRISIL AAA (SO)’ rating to Series A1 Pass Through Certificates (PTCs) to be issued by ‘Sansar April 2024 Trust’. The PTCs are being issued under a securitisation transaction backed by receivables from a replenishing pool of two-wheeler and commercial vehicle loans originated by Shriram Finance Limited (SFL; rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’).

The ratings are based on the expected credit quality of the pool backing the transaction, the origination and servicing capabilities of SFL, credit enhancement available to the PTCs, the transaction’s payment mechanism, and soundness of the transaction’s legal structure. 

The transaction has a replenishing ‘Par with excess interest spread (EIS)’ structure. SFL will assign the loan pool to ‘Sansar April 2024 Trust’, a Trust settled by the transaction’s Trustee, i.e. IDBI Trusteeship Services Limited (‘ITSL’). The Trust will issue Series A1 PTCs to investors for an amount equal to 90.0% of the initial pool principal as on the cut-off date. The Trustee will appoint SFL as the Servicer, and collections from the pool will be transferred to the Collection and Payout Account (CPA) on a monthly basis to make investor payouts as per the transaction’s waterfall mechanism.  

The transaction provides for a replenishment period of up to 12 months, during which interest payments to Series A1 PTCs are promised on a monthly basis. During this period, pool cash flows (both principal and interest collections) after meeting Series A1 interest payments will be available to ‘replenish’ the pool by purchasing additional loans that meet pre-defined eligibility criteria. The monthly replenishment amounts will be to the extent that the outstanding PTC principal does not exceed 85.71% of the total of outstanding cash collateral and outstanding pool principal that is up to 90 days past due. Residual cash flow amounts, if any, that are in in excess of the monthly replenishment amounts will flow back to the originator. The replenishment period will last for 12 months from the date of Series A1 PTC issuance, or until the occurrence of any of the pre-defined events that will trigger an early amortisation. During the replenishment period, principal repayment to Series A1 PTCs is neither expected nor promised on a monthly basis.

During the amortisation period, interest payments to Series A1 PTCs are promised on a monthly basis. Principal repayment to Series A1 PTCs, while expected a monthly basis, is promised only on an ultimate basis by the instrument’s legal final maturity date. The cash collateral would be available for utilisation to meet shortfalls in monthly scheduled and expected Series A1 PTC investor payouts (both interest and principal, as applicable) as set out in the waterfall mechanism. However, an event of default on Series A1 PTCs would occur only in case the interest due to Series A1 PTC holders on any given payout date is not paid in full on that payout date, or if the Series A1 PTC principal is not repaid in full by the legal final maturity date.

Investor payouts for Series A1 PTCs are supported by cash collateral, principal subordination, and subordination of excess interest spread (EIS).

Rating Sensitivity factors

Upward factors

• For Series A1 PTCs: None

Downward factors

• For Series A1 PTCs: Credit enhancement (based on both internal and external credit enhancements) failing to cover losses of 2.8 times the estimated base case shortfalls due to weaker than expected pool collections.
• 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 securitisation transaction is backed by a replenishing pool of receivables from two-wheeler and commercial vehicle loans (65.5% and 34.5%, respectively, of the initial pool principal) originated by SFL. As of the pool cut-off date (20-Mar-2024), the initial pool loans had a weighted average seasoning of 7.9 months, a weighted average interest rate of 19.3%, a weighted average LTV ratio of 74.3%, a weighted average original tenure of 31.5 months, and an average original loan amount of Rs 1.04 lakh. The top 3 states (Uttar Pradesh, Maharashtra and Karnataka) contributed 38.1% of the initial pool principal.

Eligibility criteria for the pool loans to be added in monthly replenishments are listed below:

1.                 All contracts meet all extant regulations set out in RBI’s Master Directions (Securitisation of Standard Assets), 2021.
2.                 All loans are equally monthly amortising loans extended for buying of new two-wheelers or used/new commercial vehicles and secured by the financed vehicles
3.                 Repayment track-record:
   1.                 All contracts are current as of the cut-off date
   2.                 Minimum repayment track-record: Minimum 3 months have passed as of cut-off date since the first payment date for contracts with a tenure of 24 months or lower and 6 months for the other contracts
   3.                 A borrower with multiple loans with SFL should be current on all loans as of the cut-off date
   4.                 None of the loans has been delinquent in the last 12 months
   5.                 None of the contracts has ever been restructured
4.                 Loan parameters:
   1.                 Proportion of two-wheeler loans in the pool is no less than 65%
   2.                 Original net loan to value on no two-wheeler contract exceeds 90%
   3.                 Original net loan to value on no commercial vehicle contract exceeds 95%
   4.                 Residual tenure of two-wheeler contracts should not be longer than 30 months, and residual tenure of commercial vehicle contracts should not be longer than 60 months at date of assignment
   5.                 Interest rate on the two-wheeler loans is 26% or lower, and interest rate on the commercial vehicle loans is 18% or lower, such that weighted average IRR of the pool is no less than 18%
   6.                  Original disbursement on no two-wheeler loan exceeds INR 1,50,000, original disbursement on no new commercial vehicle loan exceeds INR 15,00,000, and original disbursement on no used commercial vehicle loan exceeds INR 7,50,000
   7.                 No individual borrower would account for more than 0.5% of the pool principal
5.                 Geographic filters
   1.                 Two-wheeler and commercial loans extended in the states/UT of Jammu & Kashmir, Kerala, Puducherry, Manipur, Bihar & Jharkhand are excluded from the pool
   2.                 Loans extended in the states/UT of Punjab, Chandigarh, Haryana, Madhya Pradesh, Gujarat, Tamil Nadu, Dadra & Nagar Haveli and Daman & Diu should have at least 6 months of seasoning.
   3.                 No single state would account for more than 25% of the pool principal, and no branch accounts for more than 1.5% of the pool principal
6.                 Other
   1.                 Loans assigned to the pool must only be extended for the purchase of two wheelers of Bajaj, Hero, Honda, Piaggio or TVS
   2.                 None of the loans is extended for purchase of electric powered two-wheelers

Early amortisation trigger events:

The monthly replenishments would stop, and the transaction would enter the amortisation period at the end of 12 months from the PTC issuance date, or on the occurrence of any of the following events.

1.                 SFL is not able to provide sufficient assets that meet the eligibility criteria & pool characteristics for two consecutive months.
   •                  SFL is expected to provide third-party auditors certificates (certifying, among other things, that the total assigned pool meets all the eligibility and concentration criteria, and that no other early amortisation trigger is in breach) along with the details of the fresh pool to be assigned 3 business days prior to the replenishment date to the Trustee.
2.                 SFL defaults on any of its outstanding debt or SFL is admitted into insolvency proceedings
3.                 Domestic rating of SFL by any rating agency is downgraded by two notches or higher
4.                 SFL has posted losses for two consecutive quarters
5.                 After monthly replenishment, the outstanding PTC principal exceeds 85.71% of the total of outstanding cash collateral and outstanding pool principal that is up to 90 days past due.
6.                 Cash collateral is used for interest payment
7.                 60+ delinquency exceeds 7.5% for the eligible pool (i.e., the pool principal that is up to 90 days past due) for two consecutive months
8.                 SFL’s Gross Stage 3 assets exceed 7.5%

Counterparty details

Additional disclosures for Provisional ratings:

The provisional rating is contingent upon execution and receipt of the following documents:

Executed documents:

• Trust Deed
• Agreement to Assign
• Deed of Assignment(s)
• Cash Collateral Agreement
• Servicer Agreement
• Power of Attorney

Other documents:

• Information Memorandum
• Legal Opinion
• Auditor’s Certificate(s)
• Trustee’s Letter
• Originator’s Representations and Warranties Letter

Additional documents, if any, executed for the transaction should also be provided along with the above documents. The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument. The final rating assigned post conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.

Rating that would have been assigned in absence of the pending documentation:

In the absence of documentation considered while assigning provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating.

Risks associated with provisional nature of credit rating:

A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon execution of certain documents by the issuer, as applicable. In case the documents received deviate significantly from the expectations, CRISIL Ratings may take appropriate action including placing the rating on watch or a rating change, depending on status of progress on a case-to-case basis. In the absence of the pending documentation, the rating on the instrument would not have been assigned ab initio.

About the Originator

Following the consummation of the merger of Shriram City Union Finance Limited (SCUF) and demerged undertaking of Shriram Capital Limited with Shriram Transport Finance Company Limited (STFCL), the company has been renamed to Shriram Finance Limited (SFL). Shriram Housing Finance Limited (SHFL) continues to operate as a subsidiary of SFL which holds around 84.2% stake in the SHFL. Pursuant to the consummation of the transaction, Shriram Capital Limited and SCUF cease to exist.

SFL, incorporated in 1979, was registered with RBI as a deposit-taking, asset-financing non-banking financial company and predominantly provides financing for vehicles such as CVs (both pre-owned and new), tractors, and passenger vehicles. Erstwhile SCUF (now merged into SFL) was incorporated in 1986 and operated in the retail financing segment with a focus on small enterprise loans, two-wheeler loans, gold loans, housing loans and others (auto and personal loans).

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