Rating Rationale
November 14, 2018 | Mumbai
Sansar Trust June 2018 III
(Originator: Shriram Transport Finance Company Limited)
 'CRISIL AAA (SO)' for Series A PTCs and 'CRISIL BBB+ (SO) Equivalent' for Second Loss Facility converted from Provisional Ratings to Final Ratings
 
Rating Action
Trust Name Details Amount Rated (Rs Crore) Outstanding Amount (Rs Crore)*  Original Tenure (Months) Balance Tenure* Credit Collateral (Rs Crore) Ratings/Credit Opinion Rating Action
Sansar Trust June 2018 III Series A PTCs 720.51 677.51 60 58 73.80 CRISIL AAA (SO)  Converted from Provisional Rating to Final Rating
Second Loss Facility 37.77 37.77 36.03  CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*As after September 2018 payouts
Detailed Rationale

CRISIL has converted the provisional rating/credit opinion assigned to Series A pass-through certificates (PTCs) and Second Loss Facility to final rating/credit opinion of 'CRISIL AAA (SO)' and 'CRISIL BBB+ (SO) Equivalent' respectively, issued by 'Sansar Trust June 2018 III'. The provisional ratings were assigned on July 19, 2018. CRISIL has received the following final legal documents executed for the transaction. The executed documents are in line with the transaction terms at the time of initial rating. Hence, CRISIL has convered the ratings to final ratings.
 
Legal Documents

  • Trust Deed
  • Deed of Assignment
  • Power of Attorney

Other documents

  • Legal Opinion
  • Information Memorandum
  • Auditor's Certificate
  • Reps & Warranties from Originator
  • Trustee Awareness Letter

Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' ratings 

The securitisation transaction is backed by receivables from new and used commercial vehicles, passenger vehicles, three-wheeler, and construction equipment loans originated by STFCL. The rating / credit opinion is based on the credit support available to the PTCs, credit quality of underlying receivables, STFCL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread' structure. STFCL has assigned the pool to 'Sansar Trust June 2018 III', settled by IDBI Trusteeship Services Limited (ITSL), which has issued the PTCs to investors. The Series A PTC payouts are supported by credit collateral in the form of Fixed Deposits and Excess Interest Spread (EIS).
 
The total credit support available in the transaction at the time of securitisation was as below:

  • Internal credit support in the form of scheduled EIS assuming zero prepayments aggregating Rs 80.40 crore (11.2% of pool principal or 8.8% of pool cash flows)
  • External credit enhancement of Rs 73.80 crore (10.2% of pool principal or 8.1% of pool cash flows) of which second loss facility of Rs 37.77 crore (5.2% of pool principal) is in the form of a Fixed Deposit and first loss facility of Rs 36.03 crore (5.0% of pool principal) is also in the form of a Fixed Deposit
Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 73.80 crore (10.2% of pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS (assuming zero prepayment) aggregating Rs 80.40 crore (11.2% of pool principal) at the time of securitisation.
  • Presence of contracts with low IRR in the pool
    • The contracts in the pool had a weighted average interest rate of 14.1% at the time of securitisation. At the portfolio level, low IRR contracts have performed better than contracts with higher IRR.
Constraining Factors
  • Moderate presence of overdue contracts
    • As of May 31, 2018, 9.2% of the pool principal was comprised of contracts where interest and principal payments were overdue up to one month.
  • High seasoning
    • Weighted average seasoning of contracts in the pool was 14.5 months and the pool principal was amortised by 21.4% at the time of securitisation.
About the pool
The securitised pool comprises of underlying receivables from new and used commercial vehicles, passenger vehicles, three-wheeler, and construction equipment loans. The pool has a high seasoning profile as evidenced by its weighted average net seasoning of 14.5 months at the time of securitisation. Contracts in the pool are geographically diversified with top 3 states accounting for 36.0% of pool principal at the time of securitisation. The average ticket size for contracts in the pool was Rs 4.7 lakh, with a moderate weighted average loan-to-value at disbursement ratio of 73.2% at the time of securitisation. The weighted average interest rate of contracts in the pool was a low 14.1% at the time of securitisation. The pool had a moderate proportion of contracts overdue up to one month as of May 31, 2018. 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 static pool performance for new and used vehicles provided by STFCL for originations from FY2009 to Q2FY2018 (performance data up to March 2018). CRISIL has also analysed performance of previously rated securitisation transactions, and the performance of STFCL's loan portfolio. As of May 2018, 90+ dpd for the used and new portfolio are 5.9% and 5.8%, respectively.
 
CRISIL has also factored in pool-specific characteristics and estimated base-case peak shortfalls in the pool to be in the range of 5 to 7 per cent of pool cash flows.

  • CRISIL has assumed a stressed monthly prepayment rate of 0.3 to 0.8 per cent in its analysis
  • CRISIL does not envisage any risk arising on account of commingling of cash flows since CRISIL's short term rating on the servicer is 'CRISIL A1+'
  • 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 and seller STFCL Rated 'CRISIL AA+/FAAA/Stable/CRISIL A1+'  
No effect.
 
Servicer STFCL Rated 'CRISIL AA+/FAAA/Stable/CRISIL A1+' Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL given CRISIL's rating on the servicer). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank Citibank Rated 'CRISIL AAA/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of fixed deposit Citibank Rated 'CRISIL AAA/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
First loss facility in the form of Fixed Deposit Citibank Rated 'CRISIL AAA/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee ITSL Adequate Track Record Negligible effect. Can be replaced at minimal cost.
    
About the Originator
STFCL, incorporated in 1979, is the flagship company of the Shriram group. It is registered with RBI as a deposit-taking, asset-financing non-banking financial company. STFCL provides financing for vehicles such as CVs (both pre-owned and new), tractors, and passenger vehicles. It has pan-India presence, with 1,230 branches and 854 rural centers as on June 30, 2018. STFCL is also engaged in the construction equipment (CEQ) financing business through its erstwhile wholly owned subsidiary, Shriram Equipment Finance Company that was merged with STFCL with effect from 1st April 2015. In April 2018, STFCL completed the sale of its majority stake in wholly owned subsidiary Shriram Automall to MXC Solutions India Pvt Ltd (MXC, owner of CarTrade.com) for Rs 156.38 crore.
 
STFCL's reported total income (net of interest expense) and profit after tax (PAT) of Rs.6982 crore and Rs.1,568 crore respectively, for fiscal 2018 against Rs. 5,597 crore  and Rs. 1,257crore, respectively, for fiscal 2017. For the quarter ending June 30, 2018, STFCL reported net profit of Rs 571.7 crore on total income (net of interest expenses) of Rs 1844.5 crore as against net profit of Rs 459.6 crore on total income (net of interest expenses) of Rs 1541.8 crore reported in the corresponding quarter last year.

Past rated Pools
CRISIL has  ratings outstanding on 17 securitisation transactions originated by STFCL. CRISIL is receiving monthly performance reports pertaining to these transactions.
Key Financial Indicators
Particulars (for the quarter ending June 30) Unit 2018 2017
Total assets Rs. Cr. 101,118 85,241
Total income (net of interest expenses) Rs. Cr. 1,844.5 1,542.0
Profit after tax Rs. Cr 571.7 459.7
Gross NPA % 8.98 8.03
Overall capital adequacy ratio % 17.06 15.48
Return on average assets % 2.4 2.3

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)/Transaction
Type of Instrument Rated Amount
(Rs Cr)		 Date of Allotment Maturity Date# Coupon Rate (%)
(p.a.p.m.)		 Outstanding
Ratings/credit opinions		 Credit collateral (Rs Cr) ^
Series A PTCs 720.51 29-Jun-18 18-Jul-23 7.90% CRISIL AAA (SO)$ 73.80*
Second loss facility 37.77 - CRISIL BBB+ (SO) Equivalent 36.03
#Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool, and possible exercise of the clean-up call option
^ In addition, scheduled Excess Interest Spread (EIS) amounting to Rs 80.40 Cr at the time of securitisation (assuming zero prepayments) also provides credit support to PTCs
*Includes a second loss facility of Rs 37.77 Cr
$Series A PTC holders are entitled to receive timely interest and timely principal
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs   LT 677.51 CRISIL AAA (SO) 19-07-18 Provisional CRISIL AAA (SO)              
Second loss facility  LT 37.77 CRISIL BBB+ (SO) Equivalent 19-07-18 Provisional CRISIL BBB+(SO) Equivalent              
All amounts are in Rs.Cr.
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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