INDIA Residential Mortgage Trust 2025 01
(Originator: LIC Housing Finance Limited)
'Provisional Crisil AAA (SO)' assigned to Series A PTCs

 

Rating Action

Trust Name	Details	Pool Principal (Rs.Crore)	Rated Amount (Rs.Crore)	Original Tenure (Months)#	Cash Collateral (Rs.Crore)	Ratings/Credit Opinions@	Rating Action
INDIA Residential Mortgage Trust 2025 01	Series A PTCs	1,112.05	1,000.00	356	-	Provisional Crisil AAA (SO)	Provisional Rating Assigned

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

1 crore = 10 million

Refer to annexure for Details of Instruments

#Indicates final maturity date for the instrument in number of monthly payouts. Actual maturity date will depend on the level of collection shortfalls in the pool, the level of prepayments in the pool, and exercise of the clean-up call option.

@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures and is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015 directive ‘Standardizing the term, rating symbol, and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies' by Securities and Exchange Board of India (SEBI) and April 27, 2021 circular ‘Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments’ by SEBI

 

Detailed Rationale

Crisil Ratings has assigned its ‘Provisional Crisil AAA (SO)’ rating to Series A pass-through certificates (PTCs), issued by ‘INDIA Residential Mortgage Trust 2025 01’ under a securitisation transaction originated by LIC Housing Finance Limited (LIC Housing Finance; rated ‘Crisil AAA/Stable/Crisil A1+’), backed by a pool comprising home loan receivables.

The ratings are based on credit quality of the pool backing the transaction, the origination and servicing capabilities of LIC Housing Finance, credit support available to the PTCs, payment mechanism for the transaction, and soundness of the transaction’s legal structure.

 

Payment Structure

The transaction has a ‘par with monthly subordinated excess interest spread (EIS)’ structure. The trust settled by the transaction’s Trustee, i.e. IDBI Trusteeship Services Limited will issue Series A PTCs and Equity Tranche (unrated) to investors in exchange for a purchase consideration equal to 89.92% of the pool principal and 10.08% of the pool principal at the time of securitisation, respectively.

Phase 1: Till the time cash reserve fund[1] (cash reserve maintained out of excess cash inflows to be held in trust by the originator LIC Housing) is less than 5% of initial pool principal, the collections from underlying receivables will be used to pay senior cost and expected interest to Series A PTC holders. There is no expected principal for Series A PTCs in this phase and residual amount (including prepayment) will be used to build cash reserve fund. Till the time cash reserve fund is less than 5% of initial principal, non-payment of interest to Series A PTCs is not a default i.e. Series A PTC holders are not promised any payments.

Phase 2: Once cash reserve fund is built to 5% of initial pool principal, the collections from underlying receivables will be used to pay senior cost and promised interest to Series A PTCs. Subsequently, remaining collections (excluding prepayment) will be used to pay expected principal (89.92% of scheduled billing for each month and unpaid principal for previous months) to Series A PTCs. Prepayment will be completely passed on to Series A PTCs. Residual cashflows after making said payments will be passed on to equity tranche (such that outstanding Equity Tranche principal does not fall below 10% of outstanding pool principal), after reinstating the cash reserve fund amount (to the extent utilised). Series A PTC holders are promised timely interest payments on a monthly basis. Principal repayment, while expected on a monthly basis, is promised only on an ultimate basis by the instrument’s final maturity date.

 

Adequacy of credit enhancement

The investor payouts for PTCs are supported by subordination of equity tranche principal (10.08% of initial pool principal),  excess interest spread (EIS; 62.39%[2] of initial pool principal assuming no prepayments) and cash reserve fund. In phase 1, pool collections after paying senior cost are used to pay expected Series A PTCs interest and the residual amount is used to build cash reserve fund (up to maximum of 5% of initial pool principal). Hence in phase 1, in case of any shortfall in collections, cash reserve fund will not be utilised. In phase 2, Series A PTC holders are promised timely interest payments on a monthly basis and principal is promised on legal final maturity, hence cash reserve fund amount will be utilised on each payout date to cover for interest shortfall (if any) and on final maturity to cover principal shortfall (if any).

 

Based on Crisil Ratings assessment, the internal credit enhancement available in the transaction – in the form of EIS and principal subordination, considering the above structure including the availability of cash reserve fund, provide loss absorption against stressed shortfalls in the pool, commensurate with the rating assigned to the PTCs.

[1]Cash reserve fund is the reserve to be maintained out of excess cash inflows, to be held in trust by LIC Housing. Cash reserve fund amount shall be for a maximum amount equal to 5% of initial pool principal. Stipulated amount to be held in reserve can be reviewed periodically, based on consent of trustee (acting on instruction of investor) and Crisil Ratings.

[2]Considering indicative PTC yield of 7.50%p.a.pm; rating will be sensitive to any significant changes to yield

Key Rating Drivers & Detailed Description

Strengths:

• Credit enhancement available in the structure:
  • Series A1 PTCs are supported by internal credit enhancement from subordination of equity tranche principal (10.08% of initial pool principal) and excess interest spread (EIS; 62.39% of initial pool principal assuming no prepayments).
  • Pool collections after paying senior cost and Series A PTCs interest are used to build cash reserve fund (up to maximum of 5% of initial pool principal) in phase 1. In case of shortfall in collections, the cash reserve fund can be utilised to meet promised payout to Series A PTCs.
• Repayment track record of pool borrowers:
  • The contracts in the pool have been weighted average holding period (number of months from CERSAI registration) of 53.4 months and are current on their EMI payments as of cut-off date.

 

Weakness:

• Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Headwinds such as increasing interest rate scenario and increasing costs on account of inflation and geo-political uncertainties. These factors may impact the free cashflows of the borrowers and eventually hamper pool collection ratios.
• Basis risk
  • There is basis risk in the transaction as pool yield is floating and linked to originator's prime lending rate whereas the PTC yield is fixed

 

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

Liquidity: Strong

Initially, payments to investors pertain to expected yield on Series A PTCs till the cash reserve fund is built up to 5.0% of initial pool principal. Subsequently, this cash reserve fund is sufficient to cover 8 months of promised interest payouts to investors even if no collections are made from the pool.

Rating Sensitivity factors

Upward factors:

• None as pool is rated AAA (SO)

 

Downward factors:

• For Series A PTCs: Credit enhancement (as per waterfall) falling below 3.5 times the estimated base case shortfalls.
• A downgrade in the rating of the servicer/originator
• Non-adherence to the key transaction terms envisaged at the time of the rating

 

Quality of the asset pool and strength of cashflows

The contracts in the pool pertain to home loans originated by LIC Housing Finance. The pool’s key characteristics as of the cut-off date (31-March-25) are outlined below:

• Pool loans have weighted average holding period (number of months from CERSAI registration) prior to securitisation of 53.4 months.
• The average disbursement amount for pool loans was ~ Rs 28 lakhs, with a weighted average interest rate of 9.75% and a weighted average original tenure of ~213 months.
• None of the pool loans had any overdues as of the cut-off date.
   

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 collection shortfalls for the transaction, Crisil Ratings has analysed the portfolio delinquency movement, 90+ delinquencies for HL portfolio as of Dec-24 is 1.4%. 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, ticket size 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. Another form of market risk is basis risk in the transaction, the liability side interest rate is fixed and asset side interest rate is floating and linked to lender’s PLR. Crisil Ratings has factored adverse interest rate movement resulting in reduction of excess interest spread in its analysis. 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 1.8% to 2.0% of pool principal. Monthly prepayment rate of 0.5% to 1.5% has also been applied to the pool cashflows

Additional disclosures for Provisional ratings:

The provisional rating is contingent upon execution and receipt of the following documents:

 

Executed documents:

• Trust Deed
• Assignment Agreement
• Accounts Agreement
• Power of Attorney

 

Other documents:

• Information Memorandum
• Legal Opinion
• Trustee’s Letter
• Any other document required as per applicable laws

 

Additional documents, if any, executed for the transaction should also be provided along with the above documents. The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument. The final rating assigned post conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of Crisil Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.

 

Rating that would have been assigned in absence of the pending documentation:

In the absence of documentation considered while assigning provisional rating as mentioned above, Crisil Ratings would not have assigned any rating.

 

Risks associated with provisional nature of credit rating:

A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon execution of certain documents by the issuer, as applicable. In case the documents received deviate significantly from the expectations, Crisil Ratings may take appropriate action including placing the rating on watch or a rating change, depending on status of progress on a case-to-case basis. In the absence of the pending documentation, the rating on the instrument would not have been assigned ab initio.

About the company- Originator/Servicer profile
LIC Housing was promoted by LIC and other financial institutions in 1989. It is India’s one of the largest housing finance company, with 9 regional offices, 23 back offices, 44 cluster offices and 310 area offices in India, and 1 overseas representative office in Dubai as on March 31, 2024.

About the parent- LIC
Life insurance corporation of India is the largest life insurer in India. It has presence in 36 States and UTs and operates through agency force of 14.25 lacs agents as on June 30, 2024. 

LIC has also been one of the key entities which has been supporting various government initiatives for many years and derives significant support from government of India. Government of India held 96.5% as on June 30, 2024. LIC Housing Finance Ltd is one of its investments wherein LIC held 45.24% as on June 30, 2024

Key Financial Indicators

As on / for the period ended March 31	Unit	June 24	2024	2023	2022
Total Advances	Rs crore	288,665	286,844	275,047	251,120
Total income	Rs crore	6,784	27,235	22,674	19,953
Profit after tax	Rs crore	1,300	4,765	2,891	2,287
Gross NPA	%	3.3	3.3	4.49	5.35
Overall capital adequacy ratio	%	NA	20.8	18.23	18.08
Return on assets	%	1.9*	1.7	1.1	0.9

*annualised

 

Quality and experience of servicer:

LIC Housing Finance (rated ‘Crisil AAA/Stable/Crisil A1+’) will continue to service loans assigned to this trust. LIC Housing Finance has been long standing lender in the home loan market, collection report with relevant information are expected to be share with trustee in a timely manner

 

Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the internal credit enhancement available in the transaction – in the form of EIS and principal subordination 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 & Seller	LIC Housing Finance	'Crisil AAA/Stable/Crisil A1+'	No effect.
Servicer	LIC Housing Finance	'Crisil AAA/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 and Payout Account (CPA) Bank	TBD	TBD	Negligible effect. As per the terms of the transaction, the Trustee, on behalf of the investors, has the right to change the CPA Bank.
Cash reserve fund	LIC Housing Finance	'Crisil AAA/Stable/Crisil A1+'	Significant effect. As per the terms of the transaction, LIC Housing Finance will hold the cash reserve in trust. Hence, the support for the transaction from this cash reserve is based on the credit risk profile of LIC Housing Finance.
Trustee	IDBI Trusteeship Limited	Not rated by Crisil Ratings	Negligible effect. As per the terms of the transaction, the Trustee can be replaced by the investors holding majority interest.

 

A summary of key terms of servicer contract

As per indicative transaction terms, the key points on the role of the servicer to be 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

Any other information: Not Applicable

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)
NA	Series A PTCs	29-Apr-25	-	15-Dec-54	1,000.00	Highly complex	Provisional Crisil AAA (SO)	-

^ISIN yet to be issued.

#Indicates legal final maturity date for the instrument. Actual maturity date will depend on the level of collection shortfalls in the pool, the level of prepayments in the pool, and exercise of the clean-up call option

*To be decided