Fitch Affirms Small Business Trust 2015 at 'BBB-sf'; Outlook Stable

Fitch Ratings-Seoul/Sydney: Fitch Ratings has affirmed the ratings on the pass-through certificates (PTCs) from Small Business Trust 2015. The transaction is a securitisation of small business loans in India originated by Shriram City Union Finance Limited (SCUF), which also acts as the servicer for the transaction.

The rating actions are as follows:

INR383.6m Series A1 PTCs affirmed at 'BBB-sf'; Outlook Stable
INR521.8m Series A2 PTCs affirmed at 'BBB-sf'; Outlook Stable

KEY RATING DRIVERS

The affirmations reflect the build-up of credit enhancement (CE) since closing and steady portfolio performance. CE has increased steadily since the closing date, driven by rapid amortisation of the static portfolio. The pool's weighted-average (WA) loan seasoning increased to 20.1 months in March 2016 from 8.5 months at closing. Other portfolio characteristics including the WA yield and geographical distribution have remained fairly stable since the transaction closed.

The portfolio has amortised by 55.9% of its initial balance. This has raised the CE to 23.8% of the outstanding collateral balance in May 2016, from 10.5% in March 2015 when the transaction closed.

The 90+ day delinquency rate as a percentage of original pool balance has remained at zero since the transaction closed. Given minimal delinquency levels, the CE for Small Business Trust 2015 has not been utilised, while the excess spread has been available in every collection period since the transaction's closing. CE comprises a first-loss credit facility (FLCF) in the form of fixed deposits with Punjab National Bank Limited (BBB-/Stable/F3).

Fitch affirmed India's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB-' in December 2015. Fitch expects India's real GDP growth to pick up to 7.7% in the financial year ending 31 March 2017 (FY17) and 7.9% in FY18.

The default performance of the underlying pool has been low and the ABS cash flow model was not re-run for this rating action.

RATING SENSITIVITIES

Fitch evaluated the rating sensitivities of the transaction under an increased default rate scenario and a decreased recovery rate scenario.

Fitch may consider a downgrade of the rated notes if the initial base-case default rate increases by 200%. The ratings are not sensitive to a reduction of recovery rates even under the most stressful recovery rate scenario of no recoveries.

Fitch considers the likelihood of any downgrade as remote, based on its asset analysis and outlook on India's economy.

The rating may be upgraded if the rating of the credit collateral bank holding the FLCF deposit is upgraded to above 'BBB-' and the portfolio performance remains sound, with adequate CE that can withstand stress at above a 'BBB-sf' rating scenario.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by SCUF compared to SCUF's credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.

A comparison of the transaction's representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and/or links given under Related Research below.