Rating Rationale
May 31, 2022 | Mumbai
Venus Trust March 2022 A
(Originator: HDB Financial Services Limited)
'CRISIL AAA (SO)' assigned to Series A PTCs converted from Provisional rating to Final Rating
 
Rating Action
Tranche NameAmount Rated (Rs in Crores)Outstanding AmountBalance TenureCredit Collateral (Rs.)Ratings/Credit OpinionsRating Action
Series A PTCs551.57551.575445.9CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has converted its provisional rating assigned to Series A Pass-Through Certificate (PTCs) issued by 'Venus Trust March 2022 A’ to final rating of its 'CRISIL AAA (SO)'. This is under a securitisation transaction originated by : HDB Financial Services Limited (HDBFSL; rated ‘CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+’)

 

This transaction is backed by receivables from a pool of commercial vehicle, construction equipment and tractor loans originated by HDBFSL

 

CRISIL Ratings has now received the executed documents for this transaction. These executed documents are in line with terms of the transaction when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating to a final rating.

 

Legal Documents

  • Trust Deed
  • Assignment Agreement 
  • Power of Attorney

 

Other Documents

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

 

The transaction has a ‘Par with Flowback Excess Interest Spread (EIS)’ structure with trigger-based turbo-amortisation. Series A PTC holders are entitled to receive timely interest on a monthly basis, while the principal is promised on the legal final maturity date. Cash collateral shall be used on every payout date, if required in case of collection shortfall, to make promised interest payout and scheduled principal payouts to Series A PTC holders. On any payout date, if 90+ dpd (defined as principal outstanding on contracts that have been overdue for 90 days or more as a percentage of outstanding PTC principal) exceeds 7.0% or domestic rating of the Seller/Servicer falls to AA or lower by any domestic rating agency, the payment waterfall will be altered such that residual EIS will be used to prepay principal to PTC-holders, and the altered waterfall will remain effective until the relevant breach is cured for three consecutive months

 

Series A PTC holders are entitled to receive timely interest on a monthly basis, while the principal is promised on the legal final maturity date. Cash collateral shall be used on every payout date, if required in case of collection shortfall, to make promised interest payout and scheduled principal payouts to Series A PTC holders.

Key Rating Drivers & Detailed Description

Supporting Factors

  • Credit support available in the structure
    • Credit collateral of Rs 45.90 Cr (8.3% of the pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS aggregating Rs 64.76 Cr (11.7% of pool principal)
  • Seasoning
    • The pool contracts have a weighted average seasoning of 17.5 months (number of months from the first instalment credit date), and the disbursed principal has been amortised by 43.9% prior to securitization. All contracts are current as of cut-off date (January 31, 2022). None of the contracts have a maximum dpd of more than 29 days

Constraining Factors

  • Geographic concentration
    • 48.3% of the pool principal is from contracts originated in the top 3 states
  • Uncertainty regarding the economic impact of pandemic on future collections
    • In the medium term, in case of subsequent peaks of pandemic, collections in the underlying pool could come under pressure, and create asset quality concerns. Consequently, the extent of disruption to collections due to pandemic-related factors continue to remain a key monitorable

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

Liquidity: Strong

The credit collateral available in the transaction structure is Rs 45.90 crore (8.3% of pool principal) in the form of fixed deposits. The credit collateral fully covers all months of interest payouts during the tenure of the transaction even with no collections from the underlying loan pool

 

CRISIL Ratings has adequately factored these aspects into its rating analysis.

Rating Sensitivity factors

Downward factors

  • Credit enhancement (based on both internal and external credit enhancements) falling below 2.0 times of the estimated base case shortfalls for Series A PTCs
  • 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 transaction is backed by receivables from pool of commercial vehicle, construction equipment, and tractor loan contracts. Contracts in the pool have a good seasoning profile as evidenced by a weighted average net seasoning of 17.5 months (number of months from the first instalment credit date). Contracts in the pool are geographically concentrated with the top 3 states accounting for 48.3% of pool principal. The average ticket size for contracts in the pool is Rs 13.2 lakh, with a weighted average loan-to-value ratio of 79.6% at the time of loan sanction. The weighted average interest rate for contracts in the pool is 12.4%. All contracts were current on payment as of the pool cut-off date (January 31, 2022). CRISIL Ratings has adequately factored all these aspects in its rating analysis.

 

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed the moving portfolio delinquency performance in HDBFSL’s CV, CE, and Tractor loan portfolios from Apr 2012 to December 2021. CRISIL Ratings has also analysed the portfolio cuts based on Tenure, Asset type, State, etc. and compared the pool with the portfolio on these parameters.

 

1-year lagged 90+ delinquency is 4.2% for CV portfolio, 3.9% for CE portfolio, and 8.7% for Tractor portfolio as of Dec 2021. 1-year lagged delinquencies were at its peak at 7.5% for the CV business in July 2021, at 8.0% for CE business in April 2013 and at 11.1% for the Tractor business in May 2021.

 

CRISIL has also factored in pool specific characteristics and estimated the base case shortfalls in the pool by the maturity of the transaction in the range of 5.0% to 7.0% of pool cashflows.

 

  • CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.3 to 0.8% in its analysis.
  • CRISIL Ratings does not envisage any risk arising on account of commingling of cash flows since CRISIL Ratings’ short term rating on the servicer is ‘CRISIL A1+’.
  • CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)

 

Counterparty details

Capacity

Counterparty Name

Counterparty

Rating / Track record

Effect on credit ratings in case of non-performance

Originator and seller

HDBFSL

Rated ‘CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+’

 

No effect.

 

Servicer

HDBFSL

Rated ‘CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+’

Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL Ratings given CRISIL Ratings’ credit opinion/rating on the servicer). However, CRISIL Ratings 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.

Credit Collateral 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

HDB Finance was set up as a non-banking finance company by HDFC Bank in June 2007. The company began operations in fiscal 2008. As on September 30, 2021, HDFC Bank owned 95.1% of HDB Finance's equity shares.  On the same date, the company had 1336 branches across 956 cities in India. Apart from the lending business, HDB Finance is also engaged in the distribution of general and life insurance products for HDFC Ergo General Insurance Company and HDFC Standard Life Insurance Company, respectively. The company also runs BPO services that undertake collection services, back office and sales support functions under a contract with HDFC Bank.

 

HDB Finance reported a profit after tax of Rs 280 crore on a total income of Rs 5,585 crore for the half year ended September 30, 2021, as against Rs 26 crore and Rs 5,371 crore, respectively, in the corresponding half year earlier fiscal. The overall loan book stood at around Rs 60,008 crore as on September 30, 2021 (Rs 59,744 crore as on September 30, 2020). Further, HDB reported a drop in gross stage 3 asset at 6.1% as on September 30, 2021.

 

Key Financial Indicators

As on /for the year ended March 31

Unit

2021

2020

Total assets

Rs crore

62,641

60,741

Total income

Rs crore

10,756

10,758

Profit after tax

Rs crore

391

1,005

Gross NPA

%

4.5

3.9

Overall capital adequacy ratio 

%

18.9

19.4

Return on average assets

%

0.6

1.7

 

Past rated pools

CRISIL Ratings has ratings outstanding on 4 ABS transactions originated by HDBFSL. CRISIL Ratings is receiving monthly performance reports pertaining to these transactions.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 collateral (Rs Cr) *

Series A PTCs

551.57

15-Mar-22

20-Nov-26

3.65%

CRISIL AAA (SO) $

45.90

1 crore = 10 million

#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

*Additional credit support includes Rs.64.76 crore also provides credit support to PTCs

$ Series A PTC holders are entitled to receive scheduled interest and principal payments on a monthly basis from pool cash flows and/or cash collateral; however, Series A PTC holders are promised principal by legal final maturity date

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs LT 551.57 CRISIL AAA (SO) 14-03-22 Provisional CRISIL AAA (SO)   --   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
CRISILs rating methodology for ABS transactions
Legal analysis in structured finance transactions
Evaluating risks in securitisation transactions - A primer

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