Satin Creditcare and HSBC India seal landmark Rs 119.1cr deal—What it means for microfinance in India

Satin Creditcare Network Limited (SCNL), a major player in India‘s microfinance sector, has successfully concluded its first Pass-Through Certificate (PTC) transaction with HSBC India, valued at INR 119.12 crore. This transaction, completed at a coupon rate of 9.30%, represents a significant strategic move for SCNL as it aims to diversify its funding sources and strengthen its capital structure, thereby expanding its outreach to underserved communities across India.

Key Highlights and Strategic Importance

The PTC transaction involves Series A1 PTCs, which were issued on August 30, 2024, and are set to mature on August 12, 2026. The instrument was rated ‘Provisional CRISIL AA+ (SO),’ indicating high safety regarding timely servicing of financial obligations. The deal has a par structure, meaning that the loan pool is assigned to the trust for a purchase consideration equal to 87.5% of the pool principal. In this structure, 87.5% of the pool principal is issued as Series A1 PTCs, while the remaining 12.5% serves as overcollateralization to enhance the credit quality of the transaction, providing an additional buffer for investors.

SCNL’s decision to engage in a securitization deal is part of its broader strategy to optimize its capital structure. Securitization allows SCNL to convert its microfinance loan portfolios into marketable securities, thus attracting new investors and improving overall capital efficiency. This strategy aligns with SCNL’s objective of scaling its microfinance activities to provide better financial services to micro-entrepreneurs and underserved communities across India, a critical step in its financial inclusion efforts.

Financial Performance and Market Position

SCNL has demonstrated strong financial performance, which further supports its efforts in the PTC market. For the quarter ended June 2024, SCNL reported a 19.81% increase in consolidated net profit, reaching INR 105.28 crore, compared to INR 87.87 crore in the same quarter of the previous year. The company also saw a 36.90% rise in sales, amounting to INR 632.44 crore, up from INR 461.97 crore in the corresponding quarter last year. This significant growth is indicative of SCNL’s expanding footprint and its ability to leverage market opportunities effectively.

Background on Satin Creditcare Network Limited

Established in 1990, Satin Creditcare has evolved to become one of India’s largest microfinance institutions, providing small loans to low-income households and micro-entrepreneurs. Registered as a non-banking financial company (NBFC) with the Reserve Bank of India, SCNL has consistently focused on financial inclusion, particularly in rural and semi-urban areas. By leveraging innovative financial instruments like PTCs, SCNL aims to expand its funding base and continue its mission of empowering underserved communities.

HSBC India’s Role and Future Collaborations

HSBC India, part of the HSBC Group, is known for its strong presence in corporate and commercial banking. The successful completion of the PTC transaction with SCNL not only deepens the relationship between the two institutions but also opens the door for future collaborations aimed at fostering financial innovation and inclusion in India. HP Singh, Chairman and Managing Director of Satin Creditcare, expressed optimism about future partnerships, stating that this transaction reflects SCNL’s commitment to driving financial inclusion through innovative solutions.

The completion of SCNL’s first PTC transaction with HSBC India is a significant milestone that showcases the company’s strategic acumen in leveraging securitization for growth. This move is expected to bolster SCNL’s liquidity position, enhance its capital structure, and expand its outreach to the underserved, reinforcing its role as a leader in the microfinance sector in India.