Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA (SO)’ rating for Series A1 pass-through certificates (PTCs) and upgraded its rating to ‘Crisil A (SO)’ from ‘Crisil BBB+ (SO)’ for Series A2 PTCs issued by ‘Sansar Trust Nov 2023 III’. The transaction is originated by Shriram Finance Limited (SFL; rated ‘Crisil AA+/Crisil PPMLD AA+/Stable/ Crisil A1+’).

This securitization transaction is backed by receivables from loans originated by SFL; including used and new commercial vehicles (CV), passenger vehicles (PV), tractors and construction equipment (CE). The rating is based on the credit support available to the PTCs, credit quality of underlying receivables, SFL’s origination and servicing capabilities, the payment mechanism, and soundness of the transaction’s legal structure.

 

Payment structure: The transaction has a ‘Par with Excess Interest Spread (EIS)’ structure. 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 used to meet shortfalls in monthly promised Series A1 PTCs interest payouts and for the ultimate principal repayment of Series A1 PTCs on the legal final maturity date as set out in the waterfall mechanism.
 

Post redemption of Series A1 PTCs, principal repayment to Series A2 PTC investors is expected on a monthly basis but promised only on an ultimate basis by the instrument’s legal final maturity date. Series A2 investors are expected to receive residual EIS amounts on a monthly basis, however, the rating on Series A2 PTCs only addresses the likelihood of principal repayment by the legal final maturity date, and not the payment of residual EIS amounts. Post redemption of the Series A1 PTCs, the cash collateral would be available to meet shortfalls in the ultimate principal repayment of Series A2 PTCs on the legal final maturity date as set out in the waterfall mechanism.
 

Adequacy of credit enhancement: The interest payments to Series A1 PTCs are expected and 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 used to meet shortfalls in monthly promised Series A1 PTCs interest payouts and for the ultimate principal repayment of Series A1 PTCs on the legal final maturity date as set out in the waterfall mechanism.

 

Credit enhancement available in the transaction structure to support promised PTC payouts is as below:

• External credit enhancement of Rs 7.06 crore (15.2% of future investor payouts) provides credit support to Series A1 PTCs.
• Internal credit enhancement from subordination of scheduled EIS amounting to Rs 15.18crore (32.8% of future investor payouts).

 

Based on Crisil Ratings assessment, the total credit enhancement available in the transaction (internal – in the form of EIS and junior tranche; and external – in the form of cash collateral) provide loss absorption against stressed shortfalls in the pool, commensurate with the ratings

The pool has exhibited good collection performance as seen by strong collections ratios. The cumulative collection ratio (CCR)[1] for the pool is robust at 97.3%. This has led to minimal delinquencies in the pool as reflected in 0+ overdue of 1.9%. The healthy collection performance coupled with high amortisation of around 51.3% has led to an increase in the credit cover available to future PTC payouts from the cash collateral.

 

The pool is eligible for further reset of credit enhancement. Crisil Ratings has evaluated the reset in line with regulatory guidelines. However, investor consent is yet to be received. On receiving consent of the investor and trustee, a maximum amount of Rs 2.97 crore (42.0% of the current total cash collateral) can be released from the current credit enhancement of Rs. 7.06 crore.

 

Sr. no	Collateral details	Current outstanding CC (Rs.in Cr)	CC eligible for release (Rs.in Cr)	Residual CC assuming full reset (Rs.in Cr)
1	Series A1 PTCs	7.06	2.97	4.09
2	Series A2 PTCs

 

[1]CCR = {Total collections in the pool/(Total billings + opening overdues at the time of securitisation)}

Key Rating Drivers & Detailed Description

Strengths:

• Credit support available in the structure

• As after March 2025 payout, credit collateral covering  15.2% of future PTC payouts, provides support to PTCs. The PTCs also benefit from scheduled EIS, approximating Rs 15.18 crore (32.8% of the future PTC payouts).
• Healthy Collection Metrics
• As of March 2025 payout, the CCR of the transaction is 97.3%. The 3-month average monthly collection ratio (MCR)[2] is 98.9%.

 

Weakness:

• Potential effect of macro-economic headwinds

• Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Headwinds such as increased fuel costs, an increasing interest rate scenario, and moderation in demand on account of inflation and geo-political uncertainties. These factors may hamper pool collection riatios

[2]MCR = Monthly collections in the pool / Monthly billings

Liquidity: Strong

Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is above 1.5 times the estimated base shortfalls on the residual pool cash flows

Rating Sensitivity factors

Upward factors:

• For Series A1 PTC: None

         For Series A2 PTC: Credit enhancement (both internal and external combined) available in the structure exceeding 1.6 times the estimated base shortfalls on the residual pool cash flows of the pool.

 

Downward factors:

• For Series A1 PTCs: Credit enhancement (based on both internal and external combined) falling below 2.5 times the estimated base shortfalls on the residual pool cash flows.
• For Series A2 PTCs: Credit enhancement (based on both internal and external combined) falling below 1.5 times the estimated base shortfalls on the residual pool cash flows
• A sharp down grade in the ratings of the servicer/originator
• Non-adherence to the key transaction terms envisaged at the time of the rating.

About the Pool

Quality of the asset pool and strength of cashflows

The PTCs issued under this securitisation transaction are backed by a pool of receivables from commercial vehicle loans originated by SFL. As of the pool cut-off date (20-Nov-2023), the pool loans had a weighted average seasoning of 8.8 months, a weighted average interest rate of 20.3%, a weighted average LTV ratio of 79.1%, a weighted average original tenure of 42.0 months, and an average original loan amount of Rs 3.1 lakh. The top 3 states (Andhra Pradesh, Telangana and Uttar Pradesh) contributed 38.7% of the initial pool principal as of the cut-off date. All the underlying pool loans were current on repayment as on the cut-off date.

 

Pool Performance Summary (as after March 2025 payouts)

Parameters	Sansar Trust Nov 2023 III
Asset Class	Used and new PV, CV and CE loan receivables
Months Post Securitisation	15
Balance Tenure (Months)	38
Principal Amortisation	51.3%
Cumulative Collection Ratio (%)	97.3%
Average Monthly Collection Ratio over Past 3 Months	98.9%
Credit collateral (% of scheduled future payouts)	11.5%
90+ Delinquency (% of initial POS)	2.8%
180+ Delinquency (% of initial POS)	1.5%
Credit collateral utilisation	0.0%

 

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.   To assess the base case shortfalls for the portfolio, Crisil Ratings has analysed the commercial vehicle, passenger vehicle, farm equipment and construction equipment asset class static pool performance (with information on 90+ delinquencies) of loans originated by Shiram 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 and CE was 3.4%, 2,9%, 3.7% and 4.4% 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 6.0% to 8.0% of pool cashflows. Monthly prepayment rate of 0.5% to 1.5% has also been applied to the pool cashflows

 

Key Financial Indicators: SFL consolidated

As on/for year ending	Unit	Dec 24	Mar-24	Mar-23
Assets under Management (AUM)	Rs. Cr.	2,58,279	2,38,624	1,93,730
Total income (net of interest expenses)	Rs. Cr.	17,169	20,891	17,577
Profit after tax	Rs. Cr.	7,433	7,399	6,020
Gross NPA (Gross Stage-3)	%	5.38^^	5.2*	6.0*
On-book gearing	Times	4.1	3.9	3.8
Return on managed assets	%	3.2&**	3.2	3.0

*Gross Stage-3 estimated on combined basis for SFL and SHFL

^^Gross stage -3 of SFL post demerger of SHFL

**annualized

&adjusted for exceptional gain

Key Financial Indicators: SFL Standalone

As on/for year ending	Unit	Dec 24	Sept24	Mar-24	Mar-23
Assets under Management (AUM)	Rs. Cr.	2,54,469	243,043	224,862	185,683
Total income (net of interest expenses)	Rs. Cr.	17181	11,227	20,191	17,257
Profit after tax	Rs. Cr.	7622	4052	7,190	5,979
Gross NPA (Gross Stage-3)	%	5.38	5.32	5.5	6.2
On-book gearing	Times	4.1	4.0	3.8	3.6
Return on managed assets	%	3.2&	3.2**	3.2	3.4

**annualised

&adjusted for exceptional gain

Quality and experience of servicer
SFL (rated ‘Crisil AA+/Crisil PPMLD AA+/Crisil A1+’) will continue to service loans assigned to this trust. SFL has originated several securitisation transactions over the last three decades. Servicing has been done, and reports have been shared across all these transactions in a timely manner.

 Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the total credit enhancement available in the transaction (internal – in the form of EIS and junior tranche; and external – in the form of cash collateral) together can mitigate against shortfalls in collection from the pool even after stressing them commensurate with the rating assigned to the PTCs. Crisil Ratings has adequately factored key risks  in the transaction including Credit & Market (as highlighted in rating assumptions section), Counterparty and Legal risks. Legal risks are assessed based on detailed analysis of transaction documentation. Risk factored from counterparties are mentioned in the table below:

 

Counterparty Details

Capacity	Counterparty	Rating	Effect on transaction rating in case of non-performance and Provision for appointment of back-up, if any
Originator and seller	SFL	Rated ‘Crisil AA+/Crisil PPMLD AA+/Stable/Crisil A1+’	No effect.
Servicer	SFL	Rated ‘Crisil AA+/Crisil PPMLD AA+/Stable/Crisil A1+’	Significant effect, because of change in servicing quality and replacement cost of the Servicer. However, Crisil Ratings does not currently envisage the need for replacement. The Trustee, on behalf of the investors, shall retain the right to appoint a replacement Servicer in the occurrence of a ‘Servicer Event of Default’ as per the terms of the transaction. Since there is time lag between pool collections and investor payouts. In the interim, the money collected lies with the servicer and may commingle with its own cash flow. As monthly pool collections are commingled only for a short period of time, the short-term credit quality of the servicer determines the commingling risk.
Collection & Payout Account	The Hongkong and Shanghai Banking Corporation Ltd	Not rated by Crisil	Negligible effect. Account bank can be changed without impacting the rating.
Cash collateral facility in the form of Fixed Deposit	The Hongkong and Shanghai Banking Corporation Ltd	Not rated by Crisil	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee	IDBI Trusteeship Limited	Adequate track record	Negligible effect. Can be replaced at minimal cost.

 

A summary of key terms of servicer contract

The key points on the role of the servicer covered as part of the transaction documents are as below:

 

• The Trustee acting for and on behalf of the investors shall appoint, the servicer for the purpose of collecting, receiving and managing payment of the Receivables into the Collection and Payment Account for the purpose of managing, collecting and receiving the receivables, holding the underlying security and carry out other roles and roles and responsibilities as specified under the transaction documents
• The servicer shall receive servicing fees which shall be paid by the trustee in accordance with the Waterfall Mechanism as per the transaction documents.
• The servicer shall collect the receivables from the underlying borrowers and deposit the collected amounts in the collection and payment account in a timely manner as per the terms of the transaction documents.
• The servicer shall submit to the trustee all the data and reports in the manner and as per the timelines as specified under the transaction documents.
• The occurrence of certain events as per the terms of the transaction documents shall be construed as a Servicer Event of Default.
   

Provision for appointment of back-up servicer: The Trustee (acting on the instructions of the investors) as per the terms of the Servicer Agreement and upon the occurrence of Servicer’s Event of default, shall retain the right to appoint an alternate servicer

 

Performance of outstanding rated transactions

Crisil Ratings has ratings outstanding on 22 securitisation transactions backed by SFL- originated loans. Crisil Ratings is receiving monthly performance reports pertaining to these transactions. The cumulative collection efficiency in the underlying pools for these transactions range from ~96% to ~100% as of March-2025 payouts, with 90+ delinquency remaining at or below 3.0% of the initial pool principal.

Annexure - Details of Instrument(s)

ISIN	Type of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date*	Rated Amount (Rs.Crore)	Complexity level	Outstanding Rating	Cash Collateral (Rs.Crore)
INE0S8H15016	Series A1 PTCs	30-Nov-23	8.00 p.a.p.m	17-May-28	102.15	Highly Complex	Crisil AAA (SO)	7.06
INE0S8H15024	Series A2 PTCs	30-Nov-23	Variable&	17-May-28	5.38	Highly Complex	Crisil A (SO)	7.06

*Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option

&No promised yield for Series A2 PTCs; any residual cashflows post payment to Series A1 PTCs are passed on to Series A2 PTCs