India Standard Loan Trust LXXIV

(Originator: AU Small Finance Bank Limited)

'CRISIL AAA (SO)' assigned to Series A PTCs and 'CRISIL A (SO) Equivalent ' assigned to Second Loss Facility converted from provisional ratings to final ratings

 

Rating Action

Tranche Name	Amount Rated (Rs.Crore)	Outstanding Amount# (Rs.Crore)	Balance Tenure#	Credit Collateral (Rs.Crore)	Ratings/Credit Opinions	Rating Action
Second Loss Facility	10.62	10.62	63	21.24	CRISIL A (SO) Equivalent	Converted from Provisional Credit Opinion to Final Credit Opinion
Series A PTCs	424.77	389.84	63	31.86	CRISIL AAA (SO)	Converted from Provisional Rating to Final Rating

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 & Bank Facilities

#Includes a second loss facility of Rs 10.62 crore

Detailed Rationale

CRISIL Ratings has converted the provisional rating and provisional credit opinion assigned to Series A Pass-Through Certificates (PTCs) and Second Loss Facility issued by ‘India Standard Loan Trust LXXIV’ to a final rating of 'CRISIL AAA (SO)'; ‘CRISIL A (SO) Equivalent’. The PTCs were issued under a securitisation transaction backed by is backed by a pool receivables from new and used vehicle loans originated by AU Small Finance Bank (AU SFB; rated ‘CRISIL AA+/CRISIL AA/Stable/CRISIL A1+’)

 

This securitisation transaction is backed by receivables from new and used vehicle loans originated by AU SFB. The rating credit opinion is based on the credit support available to the PTCs, credit quality of underlying receivables, AU SFB’s origination and servicing capabilities, the payment mechanism, and soundness of the transaction’s legal structure.

 

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

 

Legal Documents

• Declaration of Trust
• Deed of Assignment of receivables in the process of securitisation
• FLCF Agreement
• Power of Attorney

 

Other Documents

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

 

The transaction has a ‘par with excess interest spread (EIS)’ structure. AU SFB has assigned the pool to ‘INDIA STANDARD LOAN TRUST LXXIV’, which has issued the PTCs to investors. Series A PTC payouts are supported by credit collateral and EIS.

 

The total credit support available in the transaction is as below:

• Internal credit support in the form of scheduled EIS assuming zero prepayments aggregating Rs 53.10 crore (8.6% of pool principal) for Series A PTCs
• External credit enhancement of Rs 49.27 crore (8.0% of pool principal) of which first loss facility of Rs 30.80 crore (5.0% of pool principal) is in the form of a fixed deposit and second loss facility of Rs 18.48 crore (3.0% of pool principal) is in the form of a fixed deposit, to be replaced by bank guarantee

 

Series A PTC holders are entitled to receive timely interest and ultimate principal payments on a monthly basis.

Key Rating Drivers & Detailed Description

Strengths:

• Credit support available in the structure
  • Credit collateral of Rs 49.27 crore (8.0% of the pool principal or 6.4% of pool cashflows) provides credit support to Series A PTCs. The PTCs also benefit from internal credit support through scheduled EIS (assuming zero prepayment) aggregating to Rs 53.10 crore (8.6% of pool principal).
• Repayment track record of contracts in the pool
  • The contracts in the pool have weighted average seasoning of 11.2 months and consequently, the pool has amortised by 17.4% as of the cut-off date of 31st January, 2024.

 

Weakness:

• Potential effect of macro-economic headwinds

• Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Headwinds such as increased fuel costs, an increasing interest rate scenario, and moderation in demand on account of inflation and geo-political uncertainties. These factors may hamper pool collection ratios.

• Higher LTV contracts in pool
  •    Weighted average LTV of the pool is 85.4%, also 36.2% of the pool principal are from contracts having LTV higher than 90%

Liquidity: Strong

Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls.

 

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

Rating Sensitivity factors

Upward

• For Series A PTCs: None.
• For Second Loss Facility: credit enhancement (both internal and external credit enhancement) available in the structure exceeding 1.35 times the estimated base case shortfalls on the residual cash flows of the pool.

 

Downward

• For Series A PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 2.5 times the estimated base case shortfalls. For Second Loss Facility: Credit enhancement (based on both internal and external credit enhancements) falling below 1.25 times the estimated base case shortfalls.
• 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 pool securitised comprises of car, MUV, SUV and commercial vehicle loans. The pool has weighted average seasoning of 11.2 months. The pool has moderate geographic concentration with top three states accounting for 50.9% of pool principal. Average ticket size is Rs 7.4 lakhs with weighted average interest rate of 12.3%. All the contracts in the pool were current as on pool cut-off date (January 31st, 2024). 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 static pool information (with data on 90+ delinquencies) on new and used vehicles provided by AU SFB for originations in the period H1 FY 2018 to Q4 FY 2024 (with performance data till March 2024). CRISIL Ratings has also analysed performance of past rated securitisation transactions and the performance of AU SFB’s vehicle finance portfolio. 90+ delinquency (as % of managed assets) for AU SFB’s vehicle finance portfolio was 1.9% as of March 2024.   CRISIL Ratings 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 3.0% to 5.0% of pool principal.   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) 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	AU Small Finance Bank	Rated ‘CRISIL AA+/CRISIL AA/Stable/CRISIL A1+’	No effect.
Servicer	AU Small Finance Bank	Rated ‘CRISIL AA+/CRISIL AA/Stable/CRISIL A1+’	Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL Ratings given its rating on the servicer). However, CRISIL Ratings does not envisage the requirement for replacement.
Collection and Payout Account Bank	The Hongkong and Shanghai Banking Corporation Ltd	Not Rated by CRISIL Ratings	Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of Fixed Deposit	ICICI Bank Limited	Rated ‘CRISIL AAA/CRISIL AA+/Stable’	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	HDFC Bank Limited	Rated ‘CRISIL AAA/CRISIL AA+/Stable’	Significant effect. Rating on PTCs is directly linked to CRISIL's view on long term credit risk profile of guarantee provider
Trustee	Catalyst Trusteeship Limited	Not rated by CRISIL Ratings	Negligible effect. Can be replaced at minimal cost.

 

About the Originator

AU SFB (formerly Au Financiers (India) Ltd) was incorporated in 1996 as an NBFC, promoted by Mr. Sanjay Agarwal, with 28+ years legacy of being a retail focused institution. AU SFB started its banking operations in April 2017 and listed its shares on Bombay Stock Exchange and National Stock Exchange in July 2017. AU SFB has an established market position in Rajasthan, and has expanded operations to Maharashtra, Gujarat, and other states over the years. AU SFB's main focus is retail asset-financing segment, primarily in the vehicle financing segment (around 32% of gross advances) alongside Small Business Loans to MSMEs (31%). Other segments include housing, gold loans, personal loans, overdraft, and commercial Banking Products.

 

AU SFB’s liability product offerings include the entire gamut of current account, savings account, recurring and term deposits, transaction banking, bouquet of third-party mutual funds and insurance covers.

 

As on March 31, 2024, AU SFB had established operations across 1074 banking touchpoints while serving ~49.4 Lakh customers in 21 States & 3 Union Territories with an employee base of around 29,738, employees

Key Financial Indicators

As on/for the period ended	Unit	2024	2023	2022
Total assets	Rs crore	1,09,426	90,216	69,078
Total income	Rs crore	12,301	9,240	6,915
Profit after tax	Rs crore	1,535	1,428	1,130
Gross NPA	%	1.7	1.7	2.0
Capital adequacy ratio	%	20.1	23.6	21.0
Return on assets	%	1.4	1.7	1.8

 

Past rated pools

This is the forth PTC transaction rated by CRISIL Ratings post 2020. CRISIL Ratings had rated over 25 transactions from 2011 to 2014 and 2 transactions in 2019 originated by AU SFB and received performance reports on a monthly basis pertaining to those transactions.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of the security	Date of issuance	Coupon Rate (%)	Maturity Date*	Size of the issue (Rs.Cr)	Complexity level	Rating assigned	Cash collateral (Rs.Crore)#
INE0Z4K15010	Series A PTCs	29-Jun-24	7.50%	12-Nov-29	424.77	Highly Complex	CRISIL AAA (SO)	31.86@
NA	Second Loss Facility	29-Jun-24	NA	12-Nov-29	10.62	Highly Complex	CRISIL A (SO) Equivalent	21.24

*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

#At the time of securitisation, additional credit support includes Rs 48.77 crore for Series A PTCs in form of scheduled excess interest spread (EIS) (assuming zero prepayments)

@Includes a second loss facility of Rs.10.62 crore