Rating Rationale
August 09, 2019 | Mumbai
Northern Arc 2019 MFI Janani
(Originator: Satin Creditcare Network Limited)
'CRISIL AA (SO)' for Series A1 PTCs and 'CRISIL A (SO)' for Series A2 PTCs converted from provisional ratings to final ratings   
 
Rating Action
Trust Name Details Amount Rated (Rs Crore) Outstanding Rated Amount*
(Rs Crore) 
Original Tenure (Months)# Credit Collateral
(Rs Crore)
Ratings/ Credit Opinion Rating Action
Northern Arc 2019 MFI Janani Series A1 PTCs 150.00 68.00 21 9.04 CRISIL AA (SO)  Converted from Provisional Rating to Final Rating
Series A2 PTCs 10.84 10.84 CRISIL A (SO)
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, and exercise of the clean-up call option
Detailed Rationale

CRISIL converted provisional ratings assigned to Series A1 pass-through certificates (PTCs) and Series A2 PTCs, issued by Northern Arc 2019 MFI Janani to 'CRISIL AA (SO)' and 'CRISIL A (SO)' respectively. The pool is backed by microfinance loan receivables originated by Satin Creditcare Network Limited (Satin; rated 'CRISIL A1'). The ratings are based on the credit support available to the PTCs, credit quality of underlying pool receivables, Satin's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
As required, CRISIL has received the following final executed documents. The executed documents are in line with the transaction terms at the time of provisional rating. Hence, CRISIL has converted the provisional rating to final rating.
 
Legal Documents:

  • Trust deed
  • Assignment Agreement
  • Servicing Agreement
  • Accounts Agreement
  • Power of attorney

Other Documents:

  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Seller's representations and warranties letter

For detailed information on CRISIL's policy on provisional ratings, click here: Revision in CRISIL policy for assigning 'provisional' ratings
 
The transaction has a 'par' structure, wherein the trust will issue Series A1 PTCs and Series A2 PTCs in exchange of a purchase consideration equal to 83.0% and 6.0%, respectively, of the pool principal at the time of securitisation. Total credit support available in the transaction is as follows:

  • Internal credit support in the form of scheduled cash flow subordination, aggregating Rs 45.46 crore (25.2% of pool principal) and Rs 33.34 crore (18.4% of pool principal) for Series A1 PTCs and Series A2 PTCs, respectively
  • External credit-cum-liquidity collateral of Rs 9.04 crore (5.0% of pool principal) in the form of fixed deposit provides support to Series A1 PTCs and Series A2 PTCs.

Series A1 PTCs are senior, and will have the first priority right on the trust property. Series A1 PTC holders are entitled to receive timely interest on a monthly basis, while the principal payment is promised on an ultimate basis. Series A2 PTC holders are entitled to receive timely interest on a monthly basis once Series A1 PTC holders are paid out in full. The principal payment to Series A2 PTC holders is promised on an ultimate basis. IDBI Trusteeship Services Limited (ITSL) will be appointed as the trustee to monitor the transaction on behalf of the PTC holders. Satin will continue to service the pool contracts as the servicing agent.
 
Key rating drivers and detailed description
 
Supporting Factors

  • Credit support available in the structure at the time of securitisation
    • Credit collateral of Rs 9.04 crore (5.0% of the pool principal) provides credit support to Series A1 and Series A2 PTCs. The PTCs also benefit from scheduled cash flow subordination aggregating Rs 45.46 crore (25.2% of pool principal) and Rs. 33.34 crore (18.4% of pool principal) for Series A1 PTCs and Series A2 PTCs, respectively
       
  • Seasoning of contracts in the pool
    • The contracts in the pool had a weighted average seasoning of 8.9 months as of the cut-off date (February 05, 2019).
    • All the contracts in the pool were current as of cut off date.

Constraining Factors

  • Susceptibility to political and regulatory environment
    • The microfinance industry remains susceptible to risks arising out of socio-political issues and regulatory changes. Such events have the ability to disrupt loan repayments of underlying borrowers.
  • The unsecured nature of microfinance loans and inherent modest credit risk profile of the borrowers are considered

Liquidity Position

  • The credit cum liquidity enhancement available in the transaction at the time of Securitization was Rs 9.04 crore (5.00% of the pool principal) which is in the form of fixed deposit with Ujjivan SFB Limited . The credit enhancement fully covers interest payouts to Series A1 PTCs , which is promised on a monthly basis. The principal to Series A1 investors is promised on an ultimate basis.

These aspects have been factored by CRISIL in its rating analysis.

About the Pool
The pool securitised comprises of microfinance loan receivables. The pool has a weighted average net seasoning of 19.3 fortnightly instalments. The pool is geographically concentrated with top 3 states in the pool accounting for 72.9% of the pool principal. Average ticket size is Rs. 28,295 with weighted average interest rate of 22.2%. All the contracts in the pool were current as on pool cut-off date (February 05, 2019). CRISIL has adequately factored all these aspects in its rating analysis.

Rating Assumptions
To assess the base case shortfalls for the transaction, CRISIL has analysed the moving portfolio delinquency information on portfolio for performance from May-08 to Jun-18.
 
60+ dpd and 0+ dpd on the portfolio is 4.5% and 5.9% as of Jun-18 respectively. Due to demonetisation, the 60+ dpd and 0+ dpd peaks observed were 22.1% and 47.5% respectively, but there have been recoveries from the peaks observed.
 
Based on these aspects, CRISIL has estimated base case shortfalls in the pool at 5.0-7.0% of cash flows.


  • CRISIL has assumed a stressed monthly prepayment rate of 0.5 to 1.0%in its analysis.
  • 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 Satin Rated 'CRISIL A1' No effect.
Servicer Satin Rated 'CRISIL A1' Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL does not envisage the need for replacement. The Trust or investor has right to change the servicer with an intimation to CRISIL.
Collection and Payout Account Bank IDBI Bank Rated 'CRISIL A+/CRISIL A- /FAA/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed Deposit Ujjivan SFB Rated 'CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee ITSL Adequate past track record Negligible effect. Can be replaced at minimal cost.

About the Originator
Satin Creditcare is the one of the leading NBFC-MFIs in the country with a strong presence in the underpenetrated regions of north and central India. The entity started operations in 1990 as a provider of individual and small business loan and savings services to urban shopkeepers. It got registered as an NBFC with the RBI in 1998 and converted into an NBFC-MFI in November 2013.
 
Satin Creditcare is primarily engaged in providing collateral free, microcredit facilities (based on joint liability group model) to economically active women, who otherwise have limited access to mainstream financial service providers. The company also offer loans to individual businesses, loans to MSMEs, product loans for financing purchase of solar lamps and loans for development of water connection and sanitation facilities. In 2017, Satin Creditcare incorporated a wholly owned housing finance subsidiary with an intent to diversify into housing finance segment. Entry into the MSME and housing finance segments allows the company to diversify its product suite. Its operations are spread across 18 states and union territories in India, with a focus on rural and semi-urban areas. Most of the regions in which the company operates have moderate or low microfinance penetration.

Past Rated Pools
CRISIL has ratings outsatnding on 3 PTCs transactions originated by Satin. CRISIL is receiving monthly performance report pertaining to these transactions. 
Key Financial Indicators
Particulars as on March 31, 2018 Unit 2018 2017
Assets under management Rs crore 5,757 4,067
Total income Rs crore 1,031 802
Profit after tax (PAT) Rs crore -2.7 24.9
Return on managed assets % -0.04 0.5
GNPA % 4.4 14.6
Adjusted gearing Times 6.5 8.4

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 Cr.)
Date of Allotment Maturity Date* Coupon Rate (%)
(p.a.p.m.)
Outstanding
Ratings
Credit cum liquidity Enhancement (Rs Cr.)
Series A1 PTCs 150.00 28-Feb-19 17-Jan-20 9.75% CRISIL AA (SO) 9.04&
Series A2 PTCs 10.84 28-Feb-19 17-Feb-20 13.00% CRISIL A (SO) 9.04^
*Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool
& Additional credit support includes Rs.45.46 crore in the form of scheduled cash flows subordination (assuming zero prepayments) - Includes overcollateralization of Rs. 19.88 crore (11.0% of pool principal) and Series A2 PTCs of 10.84 crore (6.0% of pool principal)
^ Additional credit support includes Rs.33.34 crore in form of scheduled cash flow subordination (assuming zero prepayments) - Includes overcollateralization of Rs 19.88 crore (11.0% of pool principal)
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs  LT 68.00 CRISIL AA (SO) 01-04-19 Provisional CRISIL AA (SO)              
Series A2 PTCs  LT 10.84 CRISIL A (SO) 01-04-19 Provisional CRISIL A (SO)              
All amounts are in Rs.Cr.
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Krishnan Sitaraman
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 8070
krishnan.sitaraman@crisil.com


Rohit Inamdar
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 22 3342 3000
Rohit.Inamdar@crisil.com


Prateek Saraf
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 22 3342 3000
Prateek.Saraf@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL