We offer term loans and working capital loans to clients from all three segments, through our own balance sheet and through our Investor Partners. The ticket sizes of our loans to financial institutions vary significantly based on their size and credit assessment.
We also offer structured credit lines to meet the working capital needs of mid-market companies. Within the overall tenor, the Borrower has the flexibility to use the limit on a need basis and pay interest only for the period of utilization with full repayment at maturity. The product gives flexibility to clients to effectively manage cash flows and the finance cost. Structured credit lines can further be customized based on a client’s requirements such as purchase order financing (pre-shipment finance) and financing for entire cash conversion cycle of our borrowers.
NCDs are an important source of funding for our Originator Partners and mid-market companies since they help tap into funding from diverse groups of investors such as foreign portfolio investors, mutual funds, large NBFCs, private wealth investors, etc. We assist our clients in the issuance of secured and unsecured NCDs of differing sizes, tenors and credit ratings to us and Investor Partners.
We have structured, arranged, and invested in the issuance of Principal Protected Market Linked Debentures (PP-MLDs) by our clients. Under these instruments, the yield to Investor Partners is dependent on the performance of a reference index and is ascertained towards the maturity of the debentures. Issuers of listed PP-MLDs benefit from the longer average maturity due to the generally bullet repayment structure (principal and interest) of the instrument.
We have enabled our Originator Partners to raise debt through commercial paper issuance. The tenor for such paper is up to a year. Investor Partners in this product have included AIFs, NBFCs and mutual funds.
This product has allowed our clients to tap into offshore Investor Partners. We have offered both rupee-denominated and foreign currency-denominated ECBs and have concluded ECB transactions for multiple Originator Partners.
We offer these products to Originator Partners in the form of subordinated term loans, long-term unsecured subordinated NCDs and redeemable preference shares. These products allow our Originator Partners to strengthen their capital base.
We enable our clients to avail debt (whether in the form of loans or instruments such as debentures) by providing a guarantee for a stated amount (“Partial Guarantee”). The Partial Guarantee provides a degree of comfort to Investor Partners as well as helps improve the credit rating.
In some cases, we also have other co-guarantors. For instance, our Company was approved by ADB as a partner financial institution in 2011 to enable partial-guarantee backed lending to Indian MFIs. Under the programme, a domestic banking partner extends rupee loans to MFIs in India backed by partial guarantees from ADB and our Company. Under the programme framework, we recommend eligible MFIs to ADB and the domestic banking partner based on our own internal due diligence and also provide subsequent portfolio monitoring and surveillance support. As a co-guarantor under the facility, our incentives are aligned with that of ADB and the banking partner in ensuring the long-term success and sustainability of the programme. Through the partnership, total loans of Rs. 8.93 billion have been facilitated to ADB approved MFIs.
In 2018 we launched our first single issuer partial credit enhanced (SPiCE®) bond. Under this structure, the client issues NCDs or avails of loans, which are backed by a Partial Guarantee as well as collateral (typically, in the form of a pool of the issuer’s receivables), which the Investor Partner may access under certain situations. The guarantee is typically in respect of an agreed percentage of the principal sums due under the NCD/loan and may be invoked by the Investor Partner in case of a default by any client covered by the structure.
We structured and arranged our first pooled bond issuance in Fiscal 2014. Under this structure, loans or rated NCDs of multiple clients are housed within a single structure and backed by a common guarantee by our Company and other financial institutions. The guarantee is typically in respect of an agreed percentage of the aggregate principal sums due under the structure and may be invoked by the Investor Partner in case of a default by any client covered by the structure. Our Originator Partners benefit from this product since it typically improves the credit rating and thereby provides access to a wider base of investors and lenders and better pricing. The Investor Partner benefits from a diversified structure with the partial guarantee from a better rated guarantor that covers the risk of default (in part or whole) of any individual loan/NCD under the structure. Further, investments in this product also help Investor Partners such as banks to meet their PSL deployment requirement based on end-use.
CENCDs and CEMLDs are structured by our Company as ‘dual recourse’ debentures and are currently largely targeted at Originator Partners since the structure requires a pool of receivables like loan assets to be offered as collateral. Under these products, the collateral pool of receivables is ring-fenced from the balance sheet of the issuer. This structure enables the issuer’s debentures to achieve a credit rating that is a few notches higher than the standalone credit rating of the issuer. Due to its higher credit rating, this product has enabled our Originator Partners to access additional investor classes.
Through rated securitization transactions, a pool of loan assets, originated by our Originator Partner is transferred to a securitization trust which issues pass-through certificates (“PTCs”) to investors. The PTCs represent the beneficial interest of the investors in the underlying loan assets and are backed by credit enhancements from the Originator Partner, and additionally, sometimes from Northern Arc. Such transfer of assets unlocks liquidity for our Originator Partners and provides them access to their deployed capital much earlier than the outstanding tenor of the loan, while also ensuring that the funding is tenure matched. Additionally, such transactions offer capital benefit to the clients under the RBI guidelines, making them an attractive option for fund raise by Originator Partner. A key benefit of the structure is the flexibility it offers in terms of tranches of investments. These tranches may be risk-based or time-based, giving potential investors a choice in investment basis their individual risk appetite and maturity requirement.
In 2010, we arranged and structured India’s first multi-originator microfinance securitisation transaction to be placed with capital markets investors. Under this structure, loan pools of a similar nature, originated by various Originator Partners are combined together and sold to a securitization trust, which then issues PTCs backed by these loans. By enabling securitization of loan pools originated by multiple Originator Partners within the same structure, this product diversifies the risk across multiple geographies and servicers; thereby, presenting an efficient option to our Originator Partners and a better risk profile to Investor Partners.
We introduced the PERSEC® as another customized product to address the needs of our Originator Partners offering short tenor loans to their customers. PERSEC® seeks to provide a long-term source of funding to our Originator Partners through transfer of existing portfolio to release capital for further growth, and to our Investor Partners seeking reasonable risk-adjusted returns along with reduced risks of reinvestment and prepayments from the underlying loan pool being securitized. PERSEC® brings in structural efficiency by enabling the securitization of additional loan assets meeting the eligibility criteria within the same transaction and structure.
This product involves the sale of a portfolio of receivables (typically, loan assets) from the Originator Partner to the assignee or buyer. This product helps: (i) banks to buy priority sector loans; (ii) larger NBFCs to inorganically grow the loan portfolio through buyouts; and (iii) diversify the Investor Partner’s portfolio. We, as the structurer and arranger, carefully selects loans (based on insights from our in-house risk analytics) from the Originator Partner’s portfolio that can be assigned, identifies Investor Partners for the client, and facilitates deal execution.
We offer term loans and working capital loans to clients from all three segments, through our own balance sheet and through our Investor Partners. The ticket sizes of our loans to financial institutions vary significantly based on their size and credit assessment.
We also offer structured credit lines to meet the working capital needs of mid-market companies. Within the overall tenor, the Borrower has the flexibility to use the limit on a need basis and pay interest only for the period of utilization with full repayment at maturity. The product gives flexibility to clients to effectively manage cash flows and the finance cost. Structured credit lines can further be customized based on a client’s requirements such as purchase order financing (pre-shipment finance) and financing for entire cash conversion cycle of our borrowers.
NCDs are an important source of funding for our Originator Partners and mid-market companies since they help tap into funding from diverse groups of investors such as foreign portfolio investors, mutual funds, large NBFCs, private wealth investors, etc. We assist our clients in the issuance of secured and unsecured NCDs of differing sizes, tenors and credit ratings to us and Investor Partners.
We have structured, arranged, and invested in the issuance of Principal Protected Market Linked Debentures (PP-MLDs) by our clients. Under these instruments, the yield to Investor Partners is dependent on the performance of a reference index and is ascertained towards the maturity of the debentures. Issuers of listed PP-MLDs benefit from the longer average maturity due to the generally bullet repayment structure (principal and interest) of the instrument.
We have enabled our Originator Partners to raise debt through commercial paper issuance. The tenor for such paper is up to a year. Investor Partners in this product have included AIFs, NBFCs and mutual funds.
This product has allowed our clients to tap into offshore Investor Partners. We have offered both rupee-denominated and foreign currency-denominated ECBs and have concluded ECB transactions for multiple Originator Partners.
We offer these products to Originator Partners in the form of subordinated term loans, long-term unsecured subordinated NCDs and redeemable preference shares. These products allow our Originator Partners to strengthen their capital base.
We enable our clients to avail debt (whether in the form of loans or instruments such as debentures) by providing a guarantee for a stated amount (“Partial Guarantee”). The Partial Guarantee provides a degree of comfort to Investor Partners as well as helps improve the credit rating.
In some cases, we also have other co-guarantors. For instance, our Company was approved by ADB as a partner financial institution in 2011 to enable partial-guarantee backed lending to Indian MFIs. Under the programme, a domestic banking partner extends rupee loans to MFIs in India backed by partial guarantees from ADB and our Company. Under the programme framework, we recommend eligible MFIs to ADB and the domestic banking partner based on our own internal due diligence and also provide subsequent portfolio monitoring and surveillance support. As a co-guarantor under the facility, our incentives are aligned with that of ADB and the banking partner in ensuring the long-term success and sustainability of the programme. Through the partnership, total loans of Rs. 8.93 billion have been facilitated to ADB approved MFIs.
In 2018 we launched our first single issuer partial credit enhanced (SPiCE®) bond. Under this structure, the client issues NCDs or avails of loans, which are backed by a Partial Guarantee as well as collateral (typically, in the form of a pool of the issuer’s receivables), which the Investor Partner may access under certain situations. The guarantee is typically in respect of an agreed percentage of the principal sums due under the NCD/loan and may be invoked by the Investor Partner in case of a default by any client covered by the structure.
We structured and arranged our first pooled bond issuance in Fiscal 2014. Under this structure, loans or rated NCDs of multiple clients are housed within a single structure and backed by a common guarantee by our Company and other financial institutions. The guarantee is typically in respect of an agreed percentage of the aggregate principal sums due under the structure and may be invoked by the Investor Partner in case of a default by any client covered by the structure. Our Originator Partners benefit from this product since it typically improves the credit rating and thereby provides access to a wider base of investors and lenders and better pricing. The Investor Partner benefits from a diversified structure with the partial guarantee from a better rated guarantor that covers the risk of default (in part or whole) of any individual loan/NCD under the structure. Further, investments in this product also help Investor Partners such as banks to meet their PSL deployment requirement based on end-use.
CENCDs and CEMLDs are structured by our Company as ‘dual recourse’ debentures and are currently largely targeted at Originator Partners since the structure requires a pool of receivables like loan assets to be offered as collateral. Under these products, the collateral pool of receivables is ring-fenced from the balance sheet of the issuer. This structure enables the issuer’s debentures to achieve a credit rating that is a few notches higher than the standalone credit rating of the issuer. Due to its higher credit rating, this product has enabled our Originator Partners to access additional investor classes.
Through rated securitization transactions, a pool of loan assets, originated by our Originator Partner is transferred to a securitization trust which issues pass-through certificates (“PTCs”) to investors. The PTCs represent the beneficial interest of the investors in the underlying loan assets and are backed by credit enhancements from the Originator Partner, and additionally, sometimes from Northern Arc. Such transfer of assets unlocks liquidity for our Originator Partners and provides them access to their deployed capital much earlier than the outstanding tenor of the loan, while also ensuring that the funding is tenure matched. Additionally, such transactions offer capital benefit to the clients under the RBI guidelines, making them an attractive option for fund raise by Originator Partner. A key benefit of the structure is the flexibility it offers in terms of tranches of investments. These tranches may be risk-based or time-based, giving potential investors a choice in investment basis their individual risk appetite and maturity requirement.
In 2010, we arranged and structured India’s first multi-originator microfinance securitisation transaction to be placed with capital markets investors. Under this structure, loan pools of a similar nature, originated by various Originator Partners are combined together and sold to a securitization trust, which then issues PTCs backed by these loans. By enabling securitization of loan pools originated by multiple Originator Partners within the same structure, this product diversifies the risk across multiple geographies and servicers; thereby, presenting an efficient option to our Originator Partners and a better risk profile to Investor Partners.
We introduced the PERSEC® as another customized product to address the needs of our Originator Partners offering short tenor loans to their customers. PERSEC® seeks to provide a long-term source of funding to our Originator Partners through transfer of existing portfolio to release capital for further growth, and to our Investor Partners seeking reasonable risk-adjusted returns along with reduced risks of reinvestment and prepayments from the underlying loan pool being securitized. PERSEC® brings in structural efficiency by enabling the securitization of additional loan assets meeting the eligibility criteria within the same transaction and structure.
This product involves the sale of a portfolio of receivables (typically, loan assets) from the Originator Partner to the assignee or buyer. This product helps: (i) banks to buy priority sector loans; (ii) larger NBFCs to inorganically grow the loan portfolio through buyouts; and (iii) diversify the Investor Partner’s portfolio. We, as the structurer and arranger, carefully selects loans (based on insights from our in-house risk analytics) from the Originator Partner’s portfolio that can be assigned, identifies Investor Partners for the client, and facilitates deal execution.