Rating Rationale

Rating Rationale

July 31, 2024 | Mumbai

Classic 2023

(Originator: Satin Creditcare Network Limited)

Rating reaffirmed at 'CRISIL AA (SO)'

Rating Action

Trust Name

Details

Amount Rated (Rs Cr)

Outstanding Rated Amount $

(Rs Cr)

Original Tenure#

(Months)

Residual Tenure# (Months)

Credit Collateral

^ (Rs Cr)

Ratings&

Rating Action

Classic 2023

Series A1 PTCs

86.88

26.01

12.07

CRISIL AA (SO)

Reaffirmed

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

$ After June 2024 payout

# Indicates door to door tenure; actual tenure will depend on the level of prepayments in the pool, exercise of the clean-up call option and extension due to moratorium

^ Additionally scheduled subordination after June 2024 payout (EIS+OC) approximating Rs.22.0 crore (assuming zero prepayments and post servicer fee payment) also provides credit support to PTCs.

& Series A1 PTC holders are entitled to receive timely interest and ultimate principal

1 crore = 10 million

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA (SO)’ rating for Series A1 pass-through certificates (PTCs) issued by ‘Classic 2023’ under a securitisation transaction originated by Satin Creditcare Network Limited (SCNL; Not rated by CRISIL).

This transaction backed by a pool comprising microfinance loan receivables, has a par with turbo-amortising structure. The seller has assigned the loan receivables to ‘Classic 2023’ in exchange for a purchase consideration, which is equal to 90% of the pool principal. The trust has issued Series A1 PTCs for the 90% and 10% of the initial pool principal will act as overcollateralization.. The ratings are based on credit quality of the pool cash flow, origination, and servicing capabilities of SCNL, credit support available to the PTCs, payment mechanism for the transaction, and soundness of the transaction’s legal structure.

The cumulative collection ratio (CCR)[1] for the pool is robust at 97.2%. This has led to low delinquencies in the pool as reflected in 0+ overdue of 1.7%. The healthy collection performance coupled with high amortisation of around 53.9% has led to an increase in the credit cover available to future PTC payouts from the cash collateral.

The pool is eligible for 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 5.07 crore (42.0% of the current cash collateral) can be released from the credit enhancement.

Sr. no	Collateral details	Current outstanding CC (Rs. Cr.)	CC eligible for release (Rs. Cr.)	Residual CC assuming full reset (Rs. Cr.)
1	Fixed Deposit	12.07	5.07	7.00

[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 of June 2024 payout, credit collateral covering 45.3% of future PTC payouts, provides support to Series A1 PTCs. The PTCs also benefit from scheduled internal subordination approximating Rs 22.0 crore (82.6% of the future PTC payouts)

Healthy Collection Metrics
- As of June 2024 payout, the CCR of the transaction is 97.2%. The 3-month average monthly collection ratio (MCR)[1] is 95.2%.

Weakness:

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 have been considered by CRISIL Ratings in its analysis.

[1] 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:

Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 2.3 times the adjusted shortfalls on the residual cash flows of the pool.

Downward factors:

Credit enhancement (based on both internal and external credit enhancements) falling below 1.9 times the adjusted shortfalls.
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

The transaction is backed by microfinance receivables originated by SCNL. The contracts in the pool have weighted average seasoning of 4.4 months, consequently, the pool is amortised by 16.7% as of the cut-off date. The pool is concentrated in terms of geography with the top 3 state and top 3 districts accounting for 63.8% and 6.6% respectively. The average ticket size for contracts in the pool is Rs 50,483, with a weighted average interest rate of 24.5%. All the contracts in the underlying loan pool were current as of the cut-off date (July 16, 2023).

CRISIL Ratings has adequately factored all these aspects in its rating analysis.

Pool Performance Summary (as after June 2024 payouts)

Parameters	Classic 2023
Asset Class	Microfinance Loan receivables
Months Post Securitisation	11
Balance Tenure (Months)	10
Principal Amortisation	53.9%
Cumulative Collection Ratio (%)	97.2%
Average Monthly Collection Ratio over Past 3 Months	95.2%
Credit collateral (% of scheduled future payouts)	45.3%
90+ Delinquency (% of initial POS)	3.1%
180+ Delinquency (% of initial POS)	1.7%
Credit collateral utilisation	0.0%

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed SCNL’s moving portfolio delinquency information for microfinance loans from April 2016 to March 2024. CRISIL Ratings has also analysed the portfolio cuts on various parameters and compared the pool with the portfolio on these parameters. Further, CRISIL Ratings has factored the delinquency performance of the microfinance industry in various geographies.

CRISIL Ratings has estimated base case shortfalls in the pool at 6.0%-8.0% of cash flows. Additionally, stresses on account of geographic concentration and political factors have been applied. CRISIL Ratings has also assumed a monthly prepayment of 0.5%-1.5% in its credit enhancement calculation. CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to Counterparty Details). CRISIL Ratings 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	SCNL	Not rated by CRISIL	No effect.
Servicer	SCNL	Not rated by CRISIL	Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL Ratings). However, CRISIL Ratings does not envisage the requirement for replacement.
Collection and Payout Account Bank	The Federal Bank Limited	‘CRISIL AA+/Positive/CRISIL A1+’	Negligible effect. Account bank can be changed without impacting the rating.
Credit Collateral in the form of Fixed Deposit	The Federal Bank Limited	‘CRISIL AA+/Positive/CRISIL A1+’	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee	Catalyst Trusteeship Limited	Not rated by CRISIL	Negligible effect. Can be replaced at minimal cost.

About the Originator

Satin Creditcare Network Limited (SCNL or Satin) is a leading microfinance institution (MFI) in the country with presence in 26 states & union territory and around 95,000 villages. The company’s mission is to be one stop solution for excluded households at the bottom of the pyramid for all their financial requirements. The company also offers financial products in the Non‐MFI segment comprising loans to MSMEs and housing finance through its subsidiaries Satin Finserv Ltd. and Satin Housing Finance Ltd.

Key Financial Indicators

As on/for the period ending	Unit	Mar-24	Mar-23	Mar-22	Mar-21	Mar-20
Total assets	Rs crore	10490	7850	7656	8045	7300
Total income	Rs crore	2240	1559	1381	1380	1530
Profit after tax	Rs crore	436	5	21	-14	155
Gross NPA (90+ dpd)	%	2.49	3.28	8.01	8.40	3.28
Adjusted gearing	Times	NA	5.04	4.45	5.25	5.58
Return on managed assets	%	NA	0.05	0.20	(0.13)	1.47

*annualised

Past rated pools

CRISIL Ratings has ratings outstanding on ten securitisation transactions originated by SCNL . 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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate(%)	Maturity date	Size of the issue (Rs.Crore)	Complexity level	Rating assigned	Cash collateral (Rs.Crore)
INE0QHB15019	Series A1 PTCs	04-Aug-2023	10.10%	18-Apr-2025	86.88	Highly Complex	CRISIL AA (SO)$	12.07

1 crore = 10 million

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

$Series A1 PTC holders are entitled to receive timely interest and ultimate principal.

Annexure - Rating History for last 3 Years

	Current			2024 (History)		2023		2022		2021		Start of 2021
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Series A1 PTCs	LT	44.32	CRISIL AA (SO)	31-05-24	CRISIL AA (SO)	30-11-23	CRISIL AA (SO)		--		--	--
			--		--	31-10-23	CRISIL AA (SO)		--		--	--
			--		--	09-08-23	Provisional CRISIL AA (SO)		--		--	--

All amounts are in Rs.Cr.

Criteria Details

Links to related criteria

Evaluating risks in securitisation transactions - A primer

Meaning and applicability of SO and CE symbol

Legal analysis in structured finance transactions

CRISILs rating methodology for ABS transactions

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