Rating Rationale. Credit (Rs. Cr) Balance Tenure* (months) Principal Outstanding (Rs. Cr) Instrument. Structure. Remark.

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1 Rating Rationale MFL Securitisation Trust XIII Credit Opinion on Liquidity Facility and Rating/Credit Opinion Reaffirmation of Pass Through Certificates issued by MFL Securitisation Trust XIII and Second Loss Facility (Based on the Proposed Amendment in the Transaction Structure). CARE has assigned a provisional credit opinion equivalent to CARE AAA (SO) [CARE Triple A (Structured Obligation)] rating to liquidity facility to be provided apart from credit enhancement pertaining to MFL Securitisation Trust XIII. Instruments with CARE AAA (SO) rating are considered to have highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. CARE has reaffirmed the rating of CARE AA (SO) [CARE Double A (Structured Obligation)] for both the Series A1 PTCs and Series A2 PTCs issued by MFL Securitisation Trust XIII backed by Commercial Vehicle, Construction Equipment and Tractor loan receivables originated by MFL. Instruments with CARE AA (SO) rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. CARE has reaffirmed the credit opinion equivalent to CARE BBB (SO) [pronounced as CARE Triple B (Structured Obligation)] rating for the Second Loss facility (SL), a part of total Credit enhancement provided. Instruments with CARE BBB (SO) rating are considered to offer moderate safety for timely servicing of debt obligations. Such instruments carry moderate credit risk. The Second Loss facility amount needs to be paid back at the end of the transaction. It is rated based on ultimate payment structure. The credit opinion assigned to Liquidity is provisional based on the proposed revised structure provided to CARE by MFL, the originator. The credit opinion will be confirmed after the amended copies of legal documents executed in accordance with the structure and an independent legal opinion is furnished by the Assignor, to the satisfaction of CARE. Consequently, CARE will issue compliance letter. Instrument Principal Outstanding (Rs. Cr) Structure Balance Tenure* (months) Rating Credit (Rs. Cr) Remark Series A1 PTC Par 37 AA (SO) Reaffirmed Series A2 PTC 5.42 Par 37 AA (SO) $ Reaffirmed

2 Facilities Credit Opinion Credit Collateral Liquidity Facility Second Loss Facility (SL) First Loss Facility (FL) Liquidity Facility (LF) Equivalent to CARE BBB (SO) rating Facility Size (Rs. Cr) Balance Tenure* (Months) Remark Reaffirmed Unrated Equivalent to CARE AAA (SO) rating # Assigned * The tenure may change due to prepayments / foreclosures in the Series A2 PTC holder s residual interest is also available as a credit enhancement. Residual interest in a month shall be available for meeting the shortfalls in corresponding monthly payout and replenishment of Credit Collateral. The remaining interest if any, in that month will flow to the Series A2 PTCs. $ Rating on series A2 PTC obligates only principal payments and not the interest payments. Yield proposed for A2 PTC holders shall be based on residual basis. Series A2 PTC holders yield (residual yield) = (total interest inflow-series A1 interest outflow-servicing fees & other charges) # The rating assigned to the LF is provisional I. Revised Transaction Structure Obligors (Vehicle loans) Loan given Originator (MFL) Monthly collection Sale of vehicle loan receivables Purchase Consideration Liquidity Facility provider (MFL and/or Bank) Servicer / Collection Agent (MFL) Collections SPV (Trust floated by ITSL) Credit Enhancement provider (MFL) Monthly Payouts Subscription Issue of PTCs Investors in A1 PTC Investors in A2 PTC The transaction has witnessed 17 months of performance after securitisation and the principal has amortised 61.3%. The transaction structure is now proposed to be amended where a liquidity facility is being introduced in the transaction which can be drawn for the shortfalls arising from the up to 90 day overdues. The liquidity facility is being introduced as a separate facility in addition to the credit collateral. The key terms of the liquidity facility are given below: The LF shall be provided by an entity which is rated at the same level as the PTCs The LF shall fund the up to 90 day overdues only. The amount of up to 90 day overdues or the total LF amount, whichever is lower shall be drawn from the LF. The liquidity facility shall be replenished first to the extent of utilisation before any payouts can be made to the PTC investors. The Liquidity Facility shall not be available to meet: 2

3 o o o any shortfall in payments related to any Receivable which is overdue for more than 90 (ninety) days; the Payouts in the event the Credit Collateral utilisation reaches 90 (ninety) per cent of the stipulated Credit Collateral; and the final Payout. II. Key Rating Factors Observed performance of the pool over 17 months post securitisation (MPS) amortization of 61.3% with the credit collateral intact after 17 MPS Credit enhancement includes Rs Cr of Credit Collateral and series A2 PTC residual interest support Liquidity Facility of Rs Cr Prevailing performance of the portfolio of MFL and other rated pools originated by MFL The revised transaction structure and defined payment mechanism III. Waterfall Mechanism On each payment date, the collection agent shall distribute the amounts collected from the pool and drawal from the liquidity facility and credit collateral, if any, in the following order of priority: 1. Payment of any statutory or regulatory dues; 2. Fees paid to Liquidity Facility provider at 1% p.m. on the amount utilized; 3. Reinstatement of Liquidity Facility to the extent of utilisation; 4. Withdrawal from Liquidity Facility to the extent of overdue amounts of up to 90 day overdue contracts or the amount of the liquidity facility whichever is lower; 5. Overdue payout to both series A1 and series A2 PTCs; 6. Payment of Promised Interest amount to series A1 PTCs; 7. Payment of Promised Principal amount to series A1 and series A2 PTCs on pari-passu basis; 8. Reinstatement of Second Loss Facility to the extent of utilisation; 9. Reinstatement of First Loss Facility to the extent of utilisation; 10. Residual Amount (EIS), if any will be realized as residual Yield to series A2 PTCs. If the amounts collected from the assigned receivables are insufficient for making payments to the investor the collection agent shall draw amounts to the extent of the shortfall from the FL. When FL is fully utilized, SL will be used. Any unused Cash collateral after the last payout to PTC investors shall be remitted back to the provider and there shall be no utilisation from the Liquidity Facility for the last payout. Any prepayment in the pool will be passed on to the investor on next payout date. 3

4 IV. Originator s Brief Profile Magma Fincorp Ltd. (MFL), the erstwhile Magma Shrachi Finance Ltd., is a registered systematically important non-deposit taking NBFC. The company was promoted by Shri Mayank Poddar of Kolkata in 1978 and is classified as an Asset Finance Company by RBI. The company is engaged in financing of cars, utility vehicles, commercial vehicles (CV), construction equipment (CE), tractors and SME loans. As on September 30, 2013 it has a wide network of 279 branches across 21 states / union territories with a client base of over 0.4 million. MFL focuses mainly on rural and semi-urban areas targeting small customers and first time buyers or users. About 64% of the customers are from rural or semi-urban areas. The company is, currently, rated as A1+ (A one plus) for short-term obligations and CARE AA+ (CARE Double A Plus) for long term obligations. Key Financial Indicators For the year ended as on 31st March H1 FY15 Total Income (in Rs. Cr) , , , Profit After Tax (in Rs. Cr) Net worth (in Rs. Cr) , , Gross NPA ratio (%) * # Capital Adequacy Ratio (CAR) (%) *Magma used to follow a policy of 100% write-off of 180+DPD assets till 31 Mar 2012 # The Gross NPA ratio as of 30th September, 2014 is reported based on AUM and not of portfolio Portfolio and delinquency Delinquency CV, CE and Tractor loans 12.0% Lagged 90+ DPD 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% CV CE Tractor 4

5 4.0% Lagged 180+ DPD 3.0% 2.0% 1.0% 0.0% CV CE Tractor 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Asset class-wise AUM (Rs.Cr) Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Jun-14 Sep-14 CV CE Tractor The total Assets Under Management (AUM) has grown over the last 30 months, but different asset classes have shown varying trends o the AUM for CV has decreased significantly with a CAGR of -14%; o CE has stagnated more or less at the same level with a CAGR of 2%; o Tractor loans have shown robust growth with a CAGR of 67%. Performance levels have been deteriorating across asset classes since last six quarters ending September 14 quarter. High delinquencies are partly due to downturn and stress in economy and partly due to stagnant of negative growth in the AUM of the particular asset class. 5

6 The lagged 90+ DPD 1 levels for CV portfolio have increased from 2.21% to 8.97% over the last 6 quarters and the 180+ DPD 2 levels have also deteriorated from 0.38% to 3.09% during the same period. Deterioration is partly due to de-growth in portfolio. The lagged 90+ DPD levels for CE portfolio have increased from 3.53% to 10.84% over the last 6 quarters and the 180+ DPD levels have also deteriorated from 0.57% to 3.95% during the same period. The lagged 90+ DPD levels for Tractor portfolio have increased from 4.85% to 9.83% over the last 6 quarters and the 180+ DPD levels have also deteriorated from 1.10% to 3.22% during the same period. 1 lagged 90+ Days Past Due (DPD) is total outstanding principal pertaining to the 90+ DPD contracts and write-off stocks as a % of portfolio principal outstanding on a lagged basis. 2 lagged 180+ Days Past Due (DPD) is total outstanding principal pertaining to the 180+ DPD contracts and write-off stocks as a % of portfolio principal outstanding on a lagged basis. 6

7 V. Pool Performance A summary of the pool performance over the last six months has been provided below for reference: Payout Month Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Months Post Securitisation Balance Tenure (Months) Amortisation 46.94% 50.07% 53.07% 55.89% 58.54% 61.31% 90+ Delinquency (% of Initial POS) 8.0% 6.3% 6.4% 6.4% 7.4% 7.3% 180+ Delinquency (% of Initial POS) 2.9% 2.7% 2.6% 3.1% 3.4% 3.6% 90+ Delinquency (% of Balance POS) 11.6% 9.0% 9.6% 9.9% 12.2% 12.4% 180+ Delinquency (% of Balance POS) 3.7% 3.5% 3.5% 4.4% 4.8% 5.3% Overdue Amt (% of Initial POS) 3.1% 3.3% 3.4% 3.6% 3.8% 4.0% CC as % of Balance POS 17.0% 18.0% 19.2% 20.4% 21.7% 23.3% FLF as % of Balance POS 5.8% 6.0% 6.4% 6.8% 7.2% 7.8% Balance CC (unutilized) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Balance FLF (unutilized) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cumulative Collection Efficiency (CCE) 95.2% 95.0% 95.2% 95.4% 95.3% 95.1% Moving Average (3 months) Collection Efficiency 97.6% 93.5% 96.0% 96.7% 97.4% 94.8% Break even Collection Efficiency 79.2% 78.4% 77.4% 76.4% 75.3% 74.0% Break even Collection Efficiency (FLF) 89.0% 88.8% 88.5% 88.3% 87.9% 87.7% Overall enhancement coverage (90+ DPD) Overall enhancement coverage (180+ DPD) FLF enhancement coverage (90+ DPD) FLF enhancement coverage (180+ DPD) Cumulative Prepayment 4.6% 4.8% 5.0% 5.2% 5.4% 5.7% We have studied the performance of this pool over 17 MPS. The pool has amortised 61.3% with a CCE that stood at 95.1%. The pool has exhibited higher than expected delinquencies. The overall enhancement cover is comfortable at 2.1x of 90+ DPD and 4.9x of 180+ DPD. The 90+ DPD has increased over the last couple of months, while the 180+ DPD has also shown an increasing trend over the last 3 months. The total overdues have also increased and stood at 4.0% of the initial POS of the pool. 7

8 VI. CARE S Analysis of the Transaction based on the revised Transaction Structure CARE has analyzed the transaction to assess whether the credit enhancement and liquidity facility are sufficient to cover the shortfalls. Since the transaction is sensitive to credit quality of the underlying pool, CARE has analyzed the performance of pools over the 17 MPS and overall portfolio performance of the Originator. Considering the above factors and recent trends in MFL s portfolio performance, CARE has estimated the base case total peak shortfalls in the range of 5.0% to 7.0% of principal outstanding. The base case shortfalls were stressed along with other key factors such as, the timing of default, the recovery assumptions, the time to recovery, the prepayment rate and the resulting average pool rate compression. CARE has found that the credit enhancement and liquidity facility provided are sufficient to cover shortfalls in stress scenario commensurate with the assigned rating. The summary analysis of credit enhancement coverage available at various scenarios of peak shortfalls is presented below: Credit cum Liquidity Enhancement Coverage Peak Shortfall Total Prepayment* 5% 10% 5.0% % % *Prepayments over the remaining duration of the transaction The above coverage levels need to be seen in light of the pool characteristics. 8

9 Vijay Agrawal Joint General Manager Tel Analyst Contact Ramadasu Bandaru Manager Tel Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most issuers of securities rated by CARE have paid a credit rating fee, based on the amount and type of securities issued. Credit Analysis & Research Limited, 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion East, Mumbai-22, INDIA Tel: Fax: