OREANDA-NEWS. Fitch Ratings has assigned final ratings to two series of pass through certificates (PTCs) from Small Business Trust 2015. The issuance consists of notes backed by small business loans originated by Shriram City Union Finance Company Limited (SCUF), which also acts as the servicer for the transaction. The ratings are as follows:

Small Business Trust 2015:
INR1.532bn Series A1 PTCs due March 2017: 'BBB-sf'; Stable Outlook
INR521.8m Series A2 PTCs due September 2019: 'BBB-sf'; Stable Outlook

The ratings address timely payment of interest and principal in accordance with the payout schedule in the transaction documents. The scheduled payout will be net of distribution taxes on the income distributed by the trust to the PTC holders.

KEY RATING DRIVERS
The ratings and outlooks reflect adequate external credit enhancement (CE), and SCUF's origination practices, servicing experience and expertise in collection and recovery of small business loans in India. The transaction is supported by sound legal and financial structures.

The CE comprises a first-loss credit facility (FLCF). The FLCF is in the form of fixed deposits with Punjab National Bank Limited (BBB-/Stable/F3) in the name of the originator with a lien marked in favour of the trustee.

The credit enhancement is deemed sufficient to cover the commingling risks of the servicer and the liquidity for the timely payment of the PTCs. As of May 2015, the transaction had a current CE of 10.84% of the outstanding pool balance.

Taking the revised data from India's Central Statistical Office as the new reference, Fitch forecasts India's GDP growth to accelerate to 8.0% in the financial year ending 31 March 2016 (FY16) and 8.3% in FY17. While plenty of policy initiatives will likely have a positive effect on real GDP growth, including structural reforms and some fiscal and monetary policy loosening, it will take time for such measures to have an impact on growth. The government continues to roll out reforms that are likely to support the investment climate in the longer run. The central government's budget, presented on 28 February 2015, showed a continuation of this process and included efforts to reduce infrastructure bottlenecks.

The agency has factored this macroeconomic outlook into its analysis and its base-case default-rate assumptions. The default rate, default timing, prepayment rate, recovery rate and time to recovery, together with the portfolio's weighted-average yield, were stressed in Fitch's Asia-Pacific Consumer ABS cash flow model to assess the sufficiency of cash flow for timely payment at the current rating level. In addition, Fitch conducted analysis to assess the small-business nature of the underlying loans. Fitch utilised its Portfolio Credit Model to analyse loan-level asset data, asset-specific recovery rates, and country correlation stress, and determined that the transaction's external CE is sufficient to support the loss rate at the highest stress under the model.

No interest-rate or foreign-currency risks exist in the transaction, since both the assets and the PTCs are fixed-rate and are denominated in rupees.

The transaction comprises a static seasoned portfolio of small business loans, which in turn are secured by chit funds and residential properties in India. For more information about the underlying portfolio, please refer to the rating action commentary for the assignment of expected ratings.

RATING SENSITIVITIES
Based on Fitch's sensitivity analysis, Fitch may consider downgrading the note ratings to 'BB+sf' if either the base-case default rate increases by 30% or the base-case recovery rate declines by 30%. The sensitivity analysis assumes that the CE and other factors remain constant.

The note ratings may be upgraded if the rating of the credit collateral bank holding the FLCF deposits 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.

At closing, SCUF assigned small business loans to Small Business Trust 2015, which in turn issued the PTCs. The PTC proceeds were used to fund the purchase of the underlying loans.

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.

Fitch reviewed the results of the agreed-upon procedures (AUP) conducted on the portfolio. The AUP reported no material errors that would impact Fitch's rating analysis.