Rating Rationale
July 09, 2020 | Mumbai
Innovation Trust XXXVI Feb 20
(Originator: Indiabulls Housing Finance Limited)
'CRISIL AA (SO)' converted from provisional rating to final rating for Series A PTCs 
 
Rating Action
Transaction Details Amount Rated
(Rs.Crore)		 Outstanding Principal
(Rs.Crore)*		 Initial Pool
Principal
(Rs.Crore)		 Original Tenure (Months)# Credit Collateral (Rs Crore)* Rating Rating Action
Innovation Trust XXXVI FEB 20 Series A PTCs 378.71 373.01 378.71 240 42.60 CRISIL AA (SO)$ Converted from Provisional Rating to Final Rating
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
#Indicates door-to-door tenure; actual tenure will depend on the level of prepayments in the pool, exercise of clean-up call option and the extent of shortfalls
$Series A PTC investors are entitled to receive timely interest and timely principal
*after June-20 payouts
Detailed Rationale

CRISIL has converted its provisonal rating assigned to Series A pass-through certificates (PTCs) issued by Innovation Trust XXXVI FEB 20 to final rating of 'CRISIL AA (SO)'.
 
CRISIL has received the legal documents executed for this transaction at the time of issuance of the PTCs. These executed documents are in line with terms of the transaction when provisional rating was assigned. Hence, CRISIL has converted the provisional rating to a final rating.
 
The executed legal documents and other relevant documents received are as below:

Legal documents

  • Deed of Assignment     
  • Trust Deed  
  • Cash Collateral Agreement
  • Power of Attorney

Other documents 

  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Seller's representations and warranties

Please click on the following link for detailed information on CRISIL's policy on provisional rating:
Revision in CRISIL policy for assigning 'provisional' ratings
 
The PTCs are backed by home loan (HL) and loan against property (LAP) receivables originated by Indiabulls Housing Finance Limited (IBHFL; 'CRISIL AA/Negative/CRISIL A1+') and Indiabulls Commercial Credit Limited (ICCL; 'CRISIL AA/Negative/CRISIL A1+'). The rating on the PTCs is based on the credit quality of pool cash flow, IBFHL and ICCL's origination and servicing capabilities, credit enhancement in the structure, and payment mechanism and soundness of the transaction's legal structure.
 
The transaction has a 'par' structure. Series A PTC holders are entitled to receive timely interest and timely principal on a monthly basis. IBHFL and ICCL has assigned the pool to Innovation Trust XXXVI FEB 20, a Trust settled by Axis Trustee Services Limited, which has in turn issued the PTCs to investors. The PTCs are supported by the cash collateral and excess interest spread. The total credit support available in the transaction is as below:

  • Internal credit support in the form of scheduled Excess Interest Spread (EIS), aggregating Rs 110.26 crore (29.1% of initial pool principal) assuming no prepayment and interest rate fluctuation
  • External credit-cum-liquidity collateral of Rs. 42.60 crore (11.2% of initial pool principal) to be provided by IBHFL and ICCL.

Post the announcement of RBI permitted payment moratorium on term loans, as confirmed by the Trustee, repayment moratorium was granted to several underlying borrowers in the securitised pool backing this transaction for the three months ended May 2020. Furthermore, in line with the pass-through nature of the instruments, PTC payout schedule has been revised to reflect the changed repayment schedule of the borrowers, such that between April 2020 and June 2020 payouts neither interest nor principal was promised to the investor i.e. credit enhancement was not to be utilized if the collections from the pool were not sufficient to make scheduled interest and/or principal payouts. CRISIL is closely following up on the status of the moratorium for July 2020 to September 2020 PTC payouts. Amended legal documents pertaining to these changes are expected post the complete lifting of the lockdown.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 42.60 Cr (11.2% of the initial pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled excess interest spread (EIS) aggregating Rs 110.26 Cr (29.1% of initial pool principal) assuming no prepayment and interest rate fluctuation.
  • Strong collections from the pool pre moratorium annoucement and investor approval for revision of PTC schedule till June 2020 payouts post announcement of moratorium
    • For April 2020 payout,  the monthly collection ratio (MCR) was 94.5% against the TCR of 79.4% and 0+ OD stood at 0.4% of the initial pool principal. While collection efficiencies (based on original billing schedule) has declined since then, there were no promised investor payouts to be made till June 2020.
 Constraining Factors
  • Granularity and borrower concentration
    • The transaction is backed by a pool of 415 loan contracts, top 10 borrowers contribute 13.7% of the total pool principal.
  • Basis Risk
    • There is basis risk in the transaction as pool yield is floating and linked to originator's prime lending rate whereas the investor's yield is floating and linked to Axis Bank's MCLR
  • Greater uncertainty in current environment
    • Shortfalls are expected to be higher than normal in the 6 to 9 months post the expiry of the RBI permitted moratorium period.
 CRISIL has adequately factored these aspects in its rating analysis
 
Liquidity: Strong
The credit cum liquidity enhancement available in the transaction is Rs 42.60 Cr (11.2% of initial pool principal)  which is in the form of fixed deposit with Axis Bank (Rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+') . The enhancement is sufficient to cover 6 months of principal and interest payouts promised to the investors even with no collections from underlying loan receivables
 
Rating sensitivities
 
Upward factors
  • Credit enhancement (internal and external combined) rising above 3.0 times the estimated base shortfalls on the residual pool cash flows
 Downward factors
  • Credit enhancement (internal and external combined) falling below 2.0 times the estimated base shortfalls on the residual pool cash flows
  • Deterioration in the credit quality of the servicers /originators
  • Non-adherence to the key transaction terms envisaged at the time of the rating
  • Investor consent on extension of moratorium to the underlying borrowers and an attendant revision in PTC payouts until  September 2020, and collection efficiency for the underlying pools post the expiry of the RBI-permitted moratorium period.

About the Pool
The pool consists of HL and LAP contracts. The weighted average seasoning of the pool is 26.1 months, and the pool is moderately concentrated geographically, with the top three states accounting for 44.8% of the pool principal. However, the pool has high customer concentration with top 10 customers accounting for 13.7% of the pool principal. All the contracts in the pool are current on payments as on the pool cut-off date, with a weighted average loan-to-value ratio of 52,5% and average ticket size of Rs. 1.31 crores.

Key Rating Assumptions
 
To assess the base case collection shortfalls1 for the transactions, CRISIL has analysed the collection performance of the pools since securitisation. CRISIL has also taken into account the delinquencies in the collection, and pool-specific characteristics and structure.
 
There is a basis risk in the transaction. The pool consists of loans at a floating rate of interest linked to prime lending rate of IBFHL and ICCL, while the investor yield is floating and linked to Axis Bank's MCLR. At present, there is a comfortable gap between the pool yield and the yield promised to the investor. However, during the tenure of the transaction, adverse movement in prime lending rate of the originator compared to Axis Bank's MCLR may compress the asset side cash flows in relation to the liability side cash flows, thus leading to basis risk. CRISIL has factored this aspect in its analysis by assuming various interest rate scenarios.
 
Borrower concentration is high in the pool with top 10 borrowers contributing 13.7% of overall pool principal. CRISIL has adequately factored this concentration risk in its analysis. CRISIL's credit ratings/internal views on these entities were also considered in the analysis.
 
CRISIL has estimated the base case peak shortfalls to be in the range of 6 to 8 per cent of the pool principal for the tenure of the transaction and higher shortfalls in the 6 to 9 month period post the expiry of the RBI permitted moratorium. CRISIL has assumed a stressed monthly prepayment rate of 1.5 to 2.5 per cent in its analysis. 
 
Counterparty Details

Capacity

Counterparty Name

Counterparty Rating/Track record

Effect on credit ratings in case of non-performance

Originator and seller IBHFL & ICCL Rated 'CRISIL AA/Negative/CRISIL A1+'  
No effect.
 
Servicer IBHFL & ICCL Rated 'CRISIL AA/Negative/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 Axis Bank Rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Credit Collateral in the form of Fixed Deposit Axis Bank Rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee Axis Trustee Services Ltd. Adequate track record Negligible effect. Can be replaced at minimal cost.

About the Originator
IBHFL is one of the larger housing financing companies in India. In its current legal form, its origins date back to April 1, 2012 when Indiabulls Financial Services Ltd was reverse-merged with it. The process was completed on March 8, 2013, following the Delhi High Court's approval on December 12, 2012. After the merger, IBHFL continues to operate as a housing finance company registered with the National Housing Bank. The company, along with its subsidiary Indiabulls Commercial Credit Ltd (ICCL) focuses on asset classes such as mortgages and commercial real estate. As on December 31, 2019, the promoter group held 21.72% stake in the company.
 
For fiscal 2019, IBHFL had a profit after tax (PAT) of Rs 4,091 crore on a total income of Rs 17,027 crore, compared with a PAT of Rs 3,895 crore and total income of Rs 14,959 crore in the previous fiscal. During nine months ended December 31, 2019, IBHFL reported PAT of Rs 2,063 crore on a total income of Rs 10,393 crore, compared with a PAT of Rs 3,084 crore and total income of Rs 12,817 crore during same period previous fiscal.

ICCL was incorporated in 2006 and is a wholly owned subsidiary of IBHFL, with total assets of Rs 17,106 crore as on March 31, 2019. ICCL is a Non-Banking Finance Company (NBFC), registered with Reserve Bank of India (RBI). The company, continues to focus on asset classes such as LAP and Commercial Real Estate. As of March 31, 2019 LAP constituted 49% of the book and remaining 51% was Commercial real Estate.

For the fiscal 2019, ICCL had a profit after tax (PAT) of Rs 323 crore on a total income of Rs 1761 crore as against a PAT of Rs 269 crore on a total income of Rs 928 crore for the previous fiscal. During half year ended September 30, 2019, ICCL reported PAT of Rs 380  crore on a total income of Rs 1223 crore, compared with a PAT of Rs 183  crore and total income of Rs 656 crore during same period previous fiscal.

Past Rated Pools
CRISIL has ratings outstanding on ten transactions originated by IBHFL. The collection efficiency for all the pools has remained robust till date. CRISIL is receiving monthly performance reports pertaining to all CRISIL-rated IBHFL originated securitisation transactions.

1Including impact of fair valuation of investment in OakNorth Bank.
Key Financial Indicators
As on/for the half year ended September 30 Unit 2020 2019
Total assets Rs. Cr. 15486 13246
Total income Rs. Cr. 1223 656
Profit after tax Rs. Cr. 380 183
Gross NPA % 1.96 0.66
Return on average assets % 4.7 3.4

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
Type of Instrument Rated Amount
(Rs.Crore)		 Date of Allotment Maturity date# Coupon Rate (%)* Outstanding
Rating		 Complexity Level Credit cum liquidity Enhancement
(Rs.Crore)&
Series A PTCs 378.71 02-Mar-20 08-Mar-40 8.50% CRISIL AA (SO)$ Highly Complex 42.60
*Floating - linked to investor's MCLR
#Indicative maturity date
&additionally, scheduled excess interest spread, amounting to around Rs.110.26 crore (assuming zero prepayments and no basis risk) also provides credit support to the PTCs
$Series A PTC investors are entitled to receive timely interest and timely principal
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs  LT  373.01  CRISIL AA (SO)  30-03-20  Provisional CRISIL AA (SO)               
All amounts are in Rs.Cr.
Links to related criteria
CRISILs rating methodology for RMBS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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