Rating Rationale

Quality of the asset pool and strength of cashflows

The securitisation transaction is backed by a replenishing pool of receivables from 2-wheeler, passenger vehicle, commercial vehicle loans and construction equipment (39.9%, 45.6%,13.3% and 1.1% respectively, of the initial pool principal) originated by SFL. As of the pool cut-off date (20-April-2025), the initial pool loans had a weighted average seasoning of 7.7 months, a weighted average interest rate of 17.2%, a weighted average LTV ratio of 79.8%, a weighted average original tenure of 39.2 months, and an average original loan amount of Rs 1.6 lakh. The top 3 states (Karnataka, Tamil Nadu and Andhra Pradesh) contributed 37.9% of the initial pool principal.

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

All the Loans shall have been extended for buying of new two-wheelers or used/new commercial vehicles or new/used passenger vehicles or new/used construction equipment and are secured by the financed assets
None of two wheeler Loans have a net LTV of more than 90% at the time origination
None of Loans have a net LTV of more than 95% at the time origination
None of the Loans have been delinquent in the last 12 months
Weighted average IRR of the pool is not less than 17%
None of the two wheeler Loans should have a residual tenure of more than 30 months
None of the two wheeler Loans have a rate of interest exceeding 26% (Twenty Six percent);
None of the passenger vehicle loans, commercial vehicle loans and equipment loans have a rate of interest exceeding 18%
Maximum ticket size of the two wheeler Loans is Rs. 1,50,000
Maximum ticket size of the new commercial vehicle/passenger vehicle loans/ equipment loans is Rs. 15,00,000
No single state would account for more than 25% of the initial pool principal
At least 35% of the loans should be two wheeler loans
No single branch account would account for more than 1.5% of the initial pool principal
No individual Borrower would account for more than 0.5% of the initial pool principal

Key replenishment termination events:

If the originator does not have sufficient loan assets, which comply with the Selection Criteria in any month.
If the Servicer commits a default on any of its obligations under the transaction documents.
If the rating of the Servicer, as assigned by the Rating Agency or any other SEBI accredited rating agency, falls at least 2 notches below its current rating.
If the Seller is in losses for two consecutive quarters as per the quarterly financials of the Seller.
The outstanding principal amounts outstanding on the PTCs is more than 84.51% of the aggregate of principal value of the loans (which are not overdue beyond 60 days) held by the Trust (together with cash realised by the Trust from the aforesaid Loans and held in the Collection and Payout Account) and available cash collateral.
If the Cash Collateral has been utilised for payment of Series A1 Yield.
If more than 5% of the loans forming part of the identified receivables have a DPD of more than 30 days in any month.

If the gross Stage 3 Assets on the books of the originator (covering all assets under management of the Seller) as per the originator’s latest audited financial statements exceeds 7.5% (seven decimal point five percent) of the assets under management of the originator.

Rating Assumptions

Background:

PTC investors are taking a direct exposure on the repayment ability of the underlying borrowers in the pool. Credit risk in the transaction is factored through the base case shortfalls expected on the portfolio, which are further adjusted for pool specific characteristics. Liquidity shortfalls have been factored in based on the 0-90 days overdue trends observed in the past rated pools of the originator.
To assess the base case shortfalls for the portfolio, Crisil Ratings has analysed the two-wheeler, commercial vehicle, passenger vehicle, farm equipment and construction equipment asset class static pool performance (with information on 90+ delinquencies) of loans originated by Shriram Finance limited during the period FY15 to Q3FY2025 (with performance data till December 2024). Crisil Ratings has also analysed the dynamic portfolio delinquencies of Shriram Finance farm equipment loan book. As of December 2024, the 90+ delinquency for CV, PV, FE, CE and 2 W was 3.4%, 2,9%, 3.7%, 4.4% and 2.4% respectively. Base case shortfalls on the portfolio are adjusted based on pool characteristics – which includes seasoning profile and repayment track record, parameters such as original tenure, interest rate, loan-to-value, etc. Crisil Ratings has additionally factored risk arising from borrower & geographic concentration in the pool.
Prepayment is a form of market risk which will result in the reduction of excess interest spread in the transaction. Prepayment risk has been assessed based on historically observed levels of prepayments for similar pools.

Assumptions:

After making the adjustments on the above factors, the base case shortfalls in the pool by maturity of the transaction is in the range of 5.0% to 7.0% of pool cashflows.
Monthly prepayment rate of 0.2% to 0.8% has also been applied to the pool cashflows.

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 SCUF and demerged undertaking of Shriram Capital Limited with SFL (erstwhile STFCL), the company has been renamed to Shriram Finance Ltd (SFL). Pursuant to the consummation of the transaction, Shriram Capital and SCUF ceased 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 financing, gold loans, housing loans and others (auto and personal loans).

On December 11, 2024, SFL sold its entire holding in Shriram Housing Finance Ltd (SHFL) to Mango Crest Investment Ltd (an affiliate of Warburg Pincus). As a result, SHFL now ceases to be a subsidiary of SFL.