Gold PTC is securitization of gold loans from a selected pool of borrowers and creation of a fixed income instrument on underlying gold loan receivables. Each Pass Through Certificate (PTC) represents a proportionate undivided beneficial interest in the underlying pool of receivables (along with security interests in relation thereto) arising from loans extended to the borrowers against gold jewellery extended by IIFL Finance Limited, in the ordinary course of business.

Under this process, the specified assets are moved from the balance sheet of the originator (in this case IIFL Finance) and sold to a trustee company, which holds the security in trust for investors. The trustee company in this case is a special-purpose vehicle (SPV) and is the legal owner of the underlying assets. These assets are then repackaged as tradeable securities backed by the pooled assets and sold to investors as Pass Through Certificates, which represent claims on incoming cashflows from such pooled assets. The issuance of securitized debt is governed under SEBI Public offer and listing of securitised debt instruments regulations, 2008.

Some of the key benefits of Securitisation are:

• Cashflows are ring fenced: Investors subscribe to PTCs issued by the SPV and get repaid only out of collections from underlying receivables held by the SPV. Other creditors of the NBFC have no legal right over these receivables
• Bankruptcy Remote: As the originator has sold the receivables, investors’ risk is limited to the risk of default and delay in underlying loan pool. PTC Investor is not threatened by unlikely default or even bankruptcy of the originator
• Credit Enhancement: The originator provides various credit enhancements such as Overcollateralization, Excess Interest Spread, Cash Collateral to increase the safety of the underlying product

• Gold loans are collateralized form of lending in which borrowers have to deposit gold jewellery as collateral. These are typically gold jewellery of purity over 18k and can be easily liquidated at market rates.
• Max LTV (Loan to Value Ratio) capped at 75% as per RBI guidelines
• NBFC can auction the underlying gold and recover the principal amount & interest thereupon in two scenarios:
  • If customer fails to settle the loan account or repay interest/installments/principal amount post the completion of loan tenure or in the interim
  • At any point of time, even before the completion of loan tenure, if NBFC is convinced that the market price or the maximum realizable value by sale of the Pledged Articles, is likely to come down below or equal to the total amount payable by customer, by way of principal, amount of the loan interest and other amounts payable in respect of the loan

• High effective rate of interest of 8% p.a. on outstanding principal amount on XIRR basis
• Medium term investment tenure of 3 years
• Monthly coupon payouts @ 7.72% p.a. paid to PTC holders every month which results in IRR returns of 8%
• Secured by gold loans - The PTC is over collateralized by 1.1 times. So, for every 100 rupees of PTC issued there are 110 rupees of gold loan receivable. The underlying gold loans in turn are backed by highly liquid collateral (gold jewellery). These loans have maximum LTV of 75% i.e. for every 100 rupees of money lent, they have 1.33 times gold as collateral
• High degree of safety of investment – PTC rating of ICRA AA (SO) implies high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk

So the originator takes the first 16% loss accrued to the pool. Historically, the NPAs of the IIFL gold loan book have never been above 1%.

The product is structured into two periods:

Replenishment Period – 1st to 26th month

Amortization period – 27th to 36th month

During the replenishment period, interest received from the pool will be used to pay coupon to the PTC holders. Principal collection from the pool will be used to replenish the trust with new gold loans to ensure a security cover of 1.1x of the outstanding amount. If a trigger event occurs, the principal cashflows will be paid out to the PTC holder and will not be used to acquire additional gold loan receivables.

Post the replenishment period (first 26 months), all principal repayment / prepayment received from the pool, after meeting the promised interest payout to PTC investors, will be paid out to the PTC holders as principal repayments. However, the principal is ‘promised’ to the investors only on the legal final maturity date of the transaction.

The instrument is held in Demat mode and is Transferrable. Further, the securities are proposed to be listed on BSE. We will assist the PTC holders in exiting by finding another buyer. This will be done on a best effort basis.

A prospective investor must qualify under any of the following categories:

Resident Individuals/Hindu Undivided Family/ Trust/ Limited Liability Partnerships/ Partnership Firm(s)/ Portfolio Managers and Foreign Institutional Investors (FII) registered with SEBI/ Association of Persons/ Companies and Bodies Corporate including Public Sector Undertakings / Commercial Banks/ Regional Rural Banks / Financial Institutions / Mutual Funds / Insurance Companies/ Alternative Investment Funds (AIF) and any other prospective investor eligible to subscribe to the PTCs under applicable laws.

No, NRIs are not allowed to invest in PTCs.

TDS would be deducted under section 194 LBC (1) by the securitization trust on the amount paid or credited as under:

• to resident investors being individuals or HUF - @ 25%
• Others - @ 30%

Further to the press release issued by the Ministry of Finance on 13th May, 2020, the rates of TDS on certain non-salaried specified payments made to residents has been reduced by 25% for the period from 14th May, 2020 to 31st March, 2021. As a result, the revised TDS rates under 194LBC (1) are as below:

• to resident investors being individuals or HUF - @ 18.75%
• Others - @ 22.5%

No, Form 15G/H is not accepted in case of Securitisation trust payouts. Investor has to submit a letter from the Income tax assessing officer mentioning the reduced rate of TDS.

The underlying loan pool consists of 81,883 contracts with an average ticket size of Rs. 71,500 and average current LTV ratio of 69.73%. The average seasoning of the loan is 4.21 months. The pool is diversified across various geographies in India with the top concentration in Gujarat at 20.2%. The borrowers have taken loan for various purposes such as Business, Agriculture, Consumption, Domestic appliances etc. with the largest being for business purpose. Please refer the rating rationale by ICRA for further details.

Pools of receivables that meet certain pre-specified eligibility criteria will be purchased every month during the replenishment period. Within the revolving period and unless a Trigger event has occurred, the principal collections including part prepayment / foreclosures will be used to purchase the additional or further receivables from the Originator to maintain the required asset cover of 1.1 times.

More than the Credit worthiness of the borrowers, it is important to understand that the underlying loan is collateralized with maximum LTV of 75%. In case of any default or delay in interest/principal repayment within a specified period of time, the NBFC has the right to sell the gold held as collateral and recover the principal amount and interest thereupon.

If any Trigger Event occurs, then the tenure of the PTCs shall be reduced and be equal to the balance tenure of the Identified Receivables, then held by the Trust, plus an additional period of 2 (Two) month. A trigger event shall occur if:

• The Originator does not have sufficient receivables (which meet the Selection Criteria) for sale during the replenishing period;
• Material breach of obligations by the Servicer;
• The Originator has informed the trustee in writing at the expiry of 12 (twelve) months from the allotment date, that it does not wish to sell any further loan assets to the Trust:
• The Investors holding majority interest have informed the trustee in writing that the SPV should not acquire any further loan assets from the Originator;
• The utilisation of cash reserve is more than 40%;
• Issuer rating falls below “A+” or PTC rating is downgraded;
• The principal value of the loans (which are not overdue beyond 90 days) held by the SPV (together with cash realised by the SPV from the said loans and held in the SPV’s bank account), is less than 1.1 times of the principal value of the PTCs.
• If more than 8% of the contracts are over 30 DPD, or 5% of the contracts are over 60 dpd or more than 1% of the contracts are over 90 DPD.

• Credit Risk of non-payment of underlying obligators. Credit cum liquidity enhancement can be used to meet any collection shortfalls
• Commingling Risk due to the time lag between collection & deposit. IIFL’s CRISIL AA (negative) rating mitigates this risk.
• Commodity Price Risk due to fluctuations in prices of gold. To mitigate this risk, IIFL constantly monitors the margin available between value of collateral based on prevailing gold prices & total exposure to the borrower.
• Servicer Risk: IIFL will act as servicer / collection agent to the transaction. The PTC investors face servicing disruption risk if servicer fails to perform its duties and obligations as per Collection & Servicing Agreement. Servicing capability & track record of IIFL mitigates this risk.