Detailed Rationale

Crisil Ratings has converted the provisional rating assigned to Series A1 Pass-Through Certificates (PTCs) issued by ‘VALENCIA 03 2025’ to a final rating of 'Crisil A+ (SO)'. The PTCs were issued under a securitisation transaction backed by is backed by a pool comprising microfinance loan receivables originated by Satin Creditcare Network Limited (SCNL).

 

This transaction is backed by a pool comprising microfinance loan receivables originated by SCNL. 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.

 

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

• Amended and restated Declaration of Trust
• Assignment Agreement
• Accounts Agreement
• Servicing Agreement
• Power of Attorney

 

Other Documents

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

 

Payment Structure:

The transaction has a ‘Par with Excess Interest Spread (EIS)’ structure. SCNL has assigned the loan pool to ‘Valencia 03 2025’, a trust settled by Vardhman Trusteeship Limited, which has issued instruments to investors in exchange for a purchase consideration equal to 91.0% of future pool principal outstanding as on the cut-off date (March 17, 2025). In case the PAR 90 of the Pool exceeds 5.00% of the initial Pool Principal during the tenure of the PTCs then, 100% EIS shall be utilized to make principal payments to the Series A1 investors.

 

Series A1 PTC holders are promised timely interest on a monthly basis and principal on ultimate basis on the maturity date of the PTCs. Investor payouts for PTCs are supported by cash collateral, overcollateralization, subordinated unrated equity tranche and subordination of excess interest spread (EIS).

 

Adequacy of credit enhancement: The investor payouts for PTCs are supported by cash collateral and subordination of equity tranche principal, over collateral principal and excess interest spread (EIS). On a monthly basis, the cash collateral can be used to make the promised interest payments in case of a shortfall in collections from the pool to Series A1 PTCs. On the Series A1 PTCs final maturity date, the cash collateral can also be used to make the promised principal repayment in case of a shortfall in collections from the pool.

Credit enhancement available in the transaction structure for Series A1 PTC is as below:

 

• Series A1 PTCs are supported by internal credit enhancement subordination of over collateral principal amounting to Rs 2.86 crore (9.0% of the initial pool principal), and subordination of scheduled EIS amounting to Rs3.79 crore (11.9% of the initial pool principal).
• The PTCs are also supported by external credit enhancement from a cash collateral amounting to Rs 1.59 crore (5.0% of the initial pool principal).

 

Based on Crisil Ratings assessment, the total credit enhancement available in the transaction (internal – in the form of EIS and principal subordination; and external – in the form of cash collateral) provide loss absorption against stressed shortfalls in the pool, commensurate with the rating assigned to the PTCs.

Key Rating Drivers & Detailed Description

Strengths:

• Credit collateral in the structure amounting to Rs 1.59 crore (5.0% of pool principal). Internal support for Series A1 PTCs includes Rs 3.79 crore (11.9% of pool principal) in the form of excess interest spread and Rs 2.86 crore (9.0% of pool principal) in the form of overcollateralization for Series A1 PTCs
• All the contracts (number: 7,839) in the underlying pool are current as of the cut-off date (March 17, 2025). The pool is characterised by weighted average seasoning of 7.1 months resulting in principal amortisation of 26.2%.

 

Weaknesses:

• 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.

• Impact of other disruptions

•                  Covid related disruptions led to very high delinquency levels for the sector and the sector remains prone to other events like droughts, floods etc.
•                  The pool is geographically concentrated with the share of top 3 states at 61.6% of pool principal, however at district level pool is diversified with the share of top 3 districts at 8.0% of pool principal.

Liquidity: Strong

Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls

Rating Sensitivity factors

Upward factors:

• Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 1.9 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 1.7 times the adjusted 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 company- Originator/Servicer profile
Satin Creditcare Network Limited (SCNL or Satin) is a leading microfinance institution (MFI) in the country with presence in 23 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	June-24	Mar-24	Mar-23	Mar-22
Total reported assets	Rs crore	10775	10490	7850	7656
Total income	Rs crore	634	2240	1559	1381
Profit after tax	Rs crore	105	436	5	21
Gross NPA (90+ dpd)	%	2.73	2.49	3.28	8.01
Adjusted gearing	Times	4.65	4.28	5.04	4.45
Return on managed assets	%	2.92*	3.48	0.05	0.20

*annualised

 

Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) 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

 

Quality and experience of servicer:

Satin will continue to service loans assigned to this trust. Satin has originated several securitisation transactions. Servicing has been done, and reports have been shared across all these transactions in a timely manner.

 

Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) 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:

 

Capacity	Counterparty Name	Counterparty Rating	Effect on transaction rating in case of non-performance and Provision for appointment of back-up, if any
Originator	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. However, currently Crisil Ratings does not envisage the need for replacement. The trustee, on behalf of the investors, shall retain the right to nominate an alternate collection agent in case of a “Servicer Event of Default”, linked to insolvency of the servicer or breach of any transaction terms.
Collection and Payout Account Bank	SBM Bank (India) Limited	Not rated by Crisil	Negligible effect. The trustee, on behalf of the investors, has the right to change the collection and payout account bank if needed.
Credit collateral in the form of Fixed Deposit	SBM Bank (India) Limited	Not rated by Crisil	Negligible effect. The trustee, on behalf of the investors, has the right to change the bank with whom the cash collateral is maintained if needed.
Trustee	Vardhaman Trusteeship Limited	Not rated by Crisil	Negligible effect. The trustee can be replaced by the investor if needed.

 

A summary of key terms of servicer contract

 

The key points on the role of the servicer 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

 

Performance of outstanding rated transactions

Crisil Ratings has ratings outstanding on instruments issued under 6 securitisation transactions backed by SCNL-originated loans as of February-2025 payout. The median cumulative collection efficiency for these transactions is 92.6% and the lowest being 89.0%, with median 90+ delinquency (includes interest overdues) at 8.0% of the initial pool principal and the highest being 10.7%.