Ecofy has recently completed what appears to be a pioneering securitisation transaction in the residential rooftop solar space. Based on publicly available information, the deal involved the securitisation of 2,400 non-overdue residential rooftop solar loans. This is as per rating document on the ICRA webiste. Tata Capital is reported to have invested in the senior tranche of pass-through certificates (PTCs). This is as per an announcement by Wadia Ghandy who seem to have acted as the legal advisor for the transaction. While modest in size, this deal is significant -possibly the first of its kind in India’s distributed renewable energy landscape.
This is a promising development. If such transactions become more common, they could open the doors to lower-cost capital for financing small-scale rooftop solar projects – an essential step toward accelerating clean energy adoption at a deeper level. Hopefully, we’ll see similar financial innovation extend to other distributed renewable energy assets or energy efficiency assets in the future. So, congratulations to the Ecofy team on this milestone!
Key Features of the Transaction
The structure appears to follow a typical two-tranche securitisation model, supported by cash collateral. The senior Series A PTCs are backed by about 30% credit enhancement leading to an A+ [So] rating:
- 10% from cash collateral
- 10% from a subordinated tranche, which Ecofy seems to have retained
- ~9% from excess interest spread
ICRA has estimated the loss rate for this asset class at around 5%, which adds some context to the credit enhancement cushion. It’s worth noting that residential rooftop solar is still a relatively new lending product in India, lacking a long-term performance track record. Moreover, Ecofy itself is a young institution but has scaled quickly-reaching INR 1,000 crore in assets, backed by strong equity support.
What Stood Out to Me
One particularly interesting aspect is the choice of asset: residential rooftop solar loans, rather than commercial ones. I had assumed the commercial segment, especially among MSMEs, would be larger available pool. This deal suggests one of three things:
- My assumption about market size may be off;
- Residential loans are performing better than commercial ones;
- Greater granularity in the residential segment may have made the asset pool more attractive to investors.
I don’t know what is behind the choice of the pool. It might be that they will soon do another transaction with a commercial rooftop only pool.
Given that residential power tariffs are typically subsidised and lower than commercial rates, I had assumed stronger solar adoption in the commercial space. Additionally, metering and other policy frameworks tend to favor commercial installations.
Focus on Borrower Quality
The borrowers in this transaction reportedly had credit bureau scores above 700, indicating that repayment behaviour was a key underwriting criterion. This makes sense, given the lack of asset-specific performance data for residential solar loans.
It would be valuable to know whether the asset pool is being monitored by factors such as:
- Rating or size of the rooftop solar unit
- Brand or make of components
If such monitoring is in place, it could provide early signals of risk, although practical constraints may limit feasibility.
Recovery Considerations
Another angle worth exploring is whether Ecofy has buyback or performance contracts with EPC (Engineering, Procurement, and Construction) partners. In case of default, especially due to equipment failure, such contracts could significantly improve recoveries. It’s unclear whether this factor was considered during the credit rating process, but it could be a meaningful lever for de-risking.
A Familiar Credit Enhancement Pattern
The 30% credit enhancement, for senior Series A PTCs, feels familiar. It is similar to the structure of early microfinance and small business loan securitisation transactions that I encountered during my time at IFMR Capital. Does this suggest that the market sees similar risk profiles across these asset classes? Or, is it simply a market norm for first-of-a-kind (FOAK) transactions? (Yes, I said FOAK – aligning with the climate finance lingo!)
The Investor
The Investor in the transaction is Tata Capital and not a bank. Tata Capital wouldnt have priority sector considerations like a bank to invest in such a transaction. Their yield expectations would be higher than a bank as well. So, the transaction may not be commercially very lucrative for Ecofy but they would have done it to establish a track record. In fact, back in time, when Microfinance and Small Business Loan PTC transactions were introduced, NBFCs were the first to invest followed by small private banks. In all possibility, we will see a similar trend here. Access to priority sector funding from banks, in future, will improve the pricing of such transactions significantly reducing costs.
Legal and Structural Considerations
The other question I had was: are residential rooftop solar units considered movable or immovable assets? This matters because securitisation involves transferring both the loan and its underlying security to the Special Purpose Vehicle (SPV). Fixed assets (like homes) incur high stamp duties during such transfers, often making deals unviable unless the originator retains the security interest – something we’ve seen in HDFC-to-HDFC Bank or LIC Housing-to-LIC transactions. This is an iffy transaction structure but works in practice. I am not a legal expert to comment on the validity.
However, given the nature of solar installations, they might be classified as movable. Even if not, the transfer of solar equipment may not trigger significant stamp duties, which helps the viability of such structures.
A Note on Asset Quality Trends
Not directly related to this transaction, but worth mentioning: Ecofy’s gross Stage 3 (non-performing) assets have shot up from 0.03% in FY24 to 1.3% in FY25, even as the portfolio doubled. This suggests that as growth stabilises, the Stage 3 aseets % could be significantly higher than 1.3%. Of course, Ecofy’s portfolio is a mix of electric vehicle loans and rooftop solar loans and I am not sure where the increase in defaults is.
If ICRA’s 5% loss assumption is accurate, and if loan yields are in the 16–18% range, a sustained increase in defaults could create problems for the balance sheet, especially in a steady-state growth environment.
Final Thoughts
This deal marks a small but important step in bringing structured finance to India’s green finance sector. It offers lessons in credit structuring, asset selection, and investor appetite for climate-aligned financial instruments. As the ecosystem evolves, better data, smarter structures, and more diversified funding sources will be key to scaling sustainable finance.
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Avishek Gupta 
Thanks Avishek for sharing about this unique transaction, which otherwise I would not have come across myself. Your views are very insightful, especially as I attempt to mutate these structures towards my area of interest – climate adaptation finance for farmers. Two questions
1) I do not follow the second point in the 30% credit enhancement feature of the structure, namely ‘10% from a subordinated tranche‘ – Could you perhaps elaborate on that?
2) More broadly, do you think securitisation is possible/will have appetite when financing innovative climate adaptation to individual farmers? What are the kind of credit enhancements do you think can increase investor confidence in those cases?
Thanks for your questions Nishanth.
1. Of the total transaction size, only 70% is contributed/invested by the senior investor i.e. the investor who will bear losses only when all forms of risk mitigation/loss absorption is used up. 30% credit enhancement is the loss protection available to the senior investor. This loss protection/credit enhancement is made up of 3 things. 10% from cash collateral i.e. a fixed deposit that can be en-cashed if there is a loss. 10% from subordination and 10% excess interest spread.
10% subordination means – other than the senior investor, there is another investor that has invested 10% of the transaction but that investor will get paid only AFTER the senior investor is paid out. Hence, this investor is subordinated to the senior investor.
2. Yes. It would be the same as any securitisation transaction of loans made to farmers or SMEs. However, achieving a good credit rating is necessary to attract senior investors who could provide funding at a low cost. And a good credit rating is possibly only if a reasonably long track record of performance of the loan type exists.
Thanks Avishek.
Regarding funding that comes in with good credit ratings and an acceptable interest rate that the sector can afford – getting till that point seems to be the bottleneck in most cases.