Performance of Kerala Financial Corporation (KFC) for Promoting of MSMEs in Kerala

International Journal of Trend in Research and Development, Volume 3(2), ISSN: 2394-9333

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IJTRD | Mar-Apr 2016

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Performance of Kerala Financial Corporation (KFC) for

Promoting of MSMEs in Kerala 1Dr.C.Sankar and

2Vinod K.Raju,

1Assistant Professor,

2Research Scholar,

1,2Department of Commerce, Karpagam University, Coimbatore, TamilNadu, India

Abstract: The difficulty in getting the right type of finance

at the right time and in the right quantity continues to haunt

the small entrepreneurs and still ranks first among the

major problems faced by the small sector. This being the

situation, it has become relevant to conduct a study aimed

at evaluating. the role and performance of the SFCs. A

detailed study on the role of the KFC in the

industrialisation of Kerala is highly worthwhile especially

in the period of global recession. . Various provisions of

the SFCs Act enjoin on the KFC to undertake the

stupendous task of industrial development in the State

concerned by providing long-term credit to the MSME

segment. The study based on secondary data. Secondary

data were collected from various official records and

reports. The KFC still functions as a Government

undertaking. The majority of its shares in value are held by

the Government of Kerala (97.06 per cent). Its capital

structure consists of both own capital and borrowed capital.

It gives more weightage to debt capital. Capital to Risk -

weighted Assets Ratio (CRAR) was at 21.57 % during the

year 2013-14, as against the minimum of 9% prescribed. ,

Corporation could make significant improvement in its

performance in all major operational areas, viz, Sanction,

(AAG 44.51)Disbursement(AAG38.16) and

Recovery(AAG12.22). Schemes of financial assistance of

the Corporation cover a series of activities ranging from

manufacture to marketing of goods and services. Regarding

the trend of loan operations, the role of the KFC in the

process of industrialisation is found to be increasing year

by year as the total amount disbursed

Keywords: Annual average growth, State Financial

Corporation, Development Financial Institution, Economic

Development, Industrialization

I. INTRODUCTION

Economic development is a primary objective

of every nation. It is a continuous and comprehensive

process which leads to rapid growth of the nation. Finance

is the life blood of any business activity .So economic

growth ,therefore ,certainly requires better deployment of

credit.

In spite of the premier role assigned to the SFCs

for financing small industries in the State concerned, small

entrepreneurs still hesitate to approach them for various

reasons. The difficulty in getting the right type of finance

at the right time and in the right quantity continues to haunt

the small entrepreneurs and still ranks first among the

major problems faced by the small sector. This being the

situation, it has become relevant to conduct a study aimed

at evaluating. the role and performance of the SFCs. The

Kerala Financial Corporation appears to be the best choice

for the study not only due to the magnitude of its operation

but also due to the fact that it is one of the oldest SFCs

functioning in the country.

A. Statement of the Problem

The Kerala Financial Corporation has been

established with a view to financing, promoting and

rehabilitating the small and medium enterprises. It is the

premier institution for industrial finance in the State. Also,

in the absence of a developed capital market in Kerala, the

DFIs are still the major source of the much needed long-

term finance to the MSMEs. With the decline in the

number of DFIs, due to the ceasing of the ICICI and the

IDBI as DFIs, in the face of financial sector reforms,

innovative financing mechanism of the remaining State

level DFIs is expected to take care of the need of project

financing

B. Relevance of the Study

A detailed study on the role of the KFC in the

industrialisation of Kerala is highly worthwhile especially

in the period of global recession. Various provisions of the

SFCs Act enjoin on the KFC to undertake the stupendous

task of industrial development in the State concerned by

providing long-term credit to the MSME segment. Hence, a

detailed study on how far the KFC has succeeded in this

regard is highly relevant. Further, the present study looks

into the extent to which the Corporation has adjusted to the

changed operating environment with its diversified

schemes to satisfy the investors in industry.

C. Objectives

1. To examine the role played by the KFC in promoting

the MSME segment in the State.

2. To suggest suitable measures for improvement of

functions of the KFC and the aided MSMEs

D. Methodology

The study requires secondary data. Secondary data were

collected from various official records and reports.


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II. PERFORMANCE OF THE CORPORATION

The Corporation is celebrating the diamond jubilee

of its incorporation in 2013. For the Corporation it has

been a long and eventful journey, supporting 45000

enterprises in the MSME sector across Kerala during the

last 61 years and continuously improving the industrial

activity and economic scenario of the State. When

compared to the previous years, Kerala Financial

Corporation has achieved substantial growth in terms of

sanction, disbursement and recovery of financial

assistance. An analysis of the operational performance of

the Corporation during the last three years is given below:

Financial Year 2013-

14

2012-

13 2011-12 AAG

Portfolio size 1800.37 1401.43 1233.984 28.94

Sanctions 989.62 661.39 539.01 44.51

Disbursement 754.73 475.94 464.57 38.16

Recovery 565.13 540.22 467.17 12.22

Total income 266.19 257.7 214.25 13.32

Total Expenditure 198.47 154 151.62 23.19127

Operating Profit 67.73 103.7 62.63 -20.3201

Net profit 41.34 68.49 45.65 -40.6585

Capital Adequacy

Ratio % 21.57 24.61 20.51 -4.09852

Gross NPA% 3.45 3.51 3.6 -2.98913

Net NPA % 0.35 0.36 1.3 -39.011

Annual Average Growth =

Where CF1 is the current figure of the first year, PF1 is

the previous figure of the first year, CFn is the current

figure of the nth year. PFn is the previous figure of the nth

year and N is the number of years

KFC is among the best performing public sector

undertakings in Kerala. It would also rank No. 1 amongst

all State Financial Corporations in the country in terms of

profitability and low level of NPA. The Non-performing

Assets are at the lowest level. The Gross NPA and Net

NPA have come down to 3.45% and 0.35% respectively.

Corporation is charging competitive rates of interest on

Term Loans and is facing stiff competition from

commercial banks and other financial institutions. To make

the rates competitive Corporation has increased the rebate

extended for prompt repayment and reduced the interest

rate to the customers. Though the net profit has come down

on account of this and due to the increase in the cost of

borrowing, Corporation could make significant

improvement in its performance in all major operational

areas, viz, Sanction, (AAG 44.51) Disbursement

(AAG38.16) and Recovery(AAG12.22). Corporation was

also able to bring about higher efficiency in Funds

Management and resource mobilization under a robust

Asset Liability Management (ALM) frame work. As a

result, Corporation has registered an impressive 28.47

percent increase in its overall loan portfolio, adding new

clients, especially young entrepreneurs. This healthy

growth is attributed to the customer centric policies and

inspired performance of the staff.

A. Operating Results:

The chart below shows the net profit trend for the last ten

years.

Rs.In Crores

B. Sanctions:

Corporation sanctioned financial assistance of Rs.989.62

Crores during the FY 2013-14 registering a growth of

49.63% when compared with the previous FY.

2014-2013 SEGMENT 2013-2012

No Amount NO AMOUNT

831 405.52 MICRO 290 193.019

32 27.43 SMALL 19 31.21

1 20 MEDIUM NIL NIL

420 536.67 OTHERS 379 436.99

1284 989.62 TOTAL 688 661.36

RS.IN CRORES


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C. Disbursements

An amount of Rs.754.73 crores was disbursed during

FY 2013-14, recording a growth of 58.58% over previous

year. The growth in sanction and disbursement when

compared to the previous financial year indicates the

healthy contribution of the Corporation to the development

of the industrial activity in the State.

D. Recovery

Total recovery during the year was Rs.565.13

crores. Out of this, principal recovery was Rs.315.02 crores

and interest recovery amounted to Rs.250.11 crores. Out of

the total recovery, an amount of Rs.41.86 crores was by

way of compromise settlement. On the recovery front, the

total amount collected has gone up by 4.61%.while the

total interest income has gone up by 16.38%. The high

level of growth in these areas throw light on the effective

functioning of the organization in terms of quality lending

and highly efficient collection of current dues.

Rs. In crores

E. Capital Adequacy Ratio:

Capital to Risk - weighted Assets Ratio (CRAR) was

at 21.57 % during the year , as against the minimum of 9%

prescribed.

F. Dividend:

During this year the corporation has proposed a

dividend of 5% on paid up share capital, amounting to Rs.

10.60 crores

G. Share Capital:

The paid up share capital of the Corporation as on March

31st 2014 is at Rs.211.97 crores.

H. Net worth

I. Corporate Governance:

The Corporation has been ensuring fairness,

responsibility, accountability and transparency in all its

dealings. Loan Policy, Compromise Settlement Policy,

Valuation Policy etc. were all reviewed and updated. ISO

procedures are scrupulously complied with. The

Corporation has designated State Public information

Officers, Assistant State Public Information Officers and

Appellate Officers for the Head Office as well as the

Branch Offices for providing reply under RTI. Prompt

action is taken for replying the petitions received under

RTI. 55 applications were received and no applications

were pending as on 31.03.2014.

J. Shareholder information:

The composition of shareholders as on March 31, 2014 is

furnished below:

Shareholders Rs.In Lakhs % Share holdig

Government of

Kerala

20573.81 97.06

SIDBI 613.33 2.89

LIC 7.10 0.03

SBT 2.10 0.01

Others 0.96 0.01

Total 21197.30 100


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BRANCH WISE BREAKUP OF LOAN OPERATION DURING THE YEAR 2013-2014

APPLICATION RECEIVED

MICRO SMALL MEDIUM OTHERS TOTAL

BRANCH NO. AMOUNT NO

AMOUNT NO

AMOUNT NO

AMOUNT NO

%of NO

AMOUNT

%of amt

TVM 36 1946.3 85 2677.2 17 9945.9 0 0 138 12.0

3 14536.4 12.47

KOLLAM 15 174 20 2544 5 4900 0 0 40 3.49 7618 6.54

PTA 17 974.5 17 4857.5 12 5745 0 0 46 4.01 11577 9.93

ALP 12 183 7 936.3 0 0 25 2871 44 3.84 3990.6 3.42

KOTTAYAM 18 193.5 18 1087.1 1 200 20 5628 57 4.97 7108.6 6.10

IDUKKI 35 1901.3 1 35 0 0 0 0 36 3.14 1936.3 1.66

THODUPUZHA 10 123.7 26 1861.3 1 1500 0 0 37 3.23 3484.9 2.99

ERNAKULAM 13 111 8 1853 0 0 67 10158 88 7.67 12122.3 10.40

PERUMBAOOR 8 124 39 3007 0 0 7 379 54 4.71 3510 3.01

TRISSUR 15 89.8 23 1578.4 3 525 48 4540.2 89 7.76 6733.4 5.78

PALAKKAD 21 242.9 12 1833 0 0 32 2769.9 65 5.67 4845.8 4.16

MALAPPURAM 38 563 33 4403 1 427 13 1260 85 7.41 6653.1 5.71

KOZHIKODE 57 909.3 33 2343.8 1 2000 30 7777 121 10.5

5 13030 11.18

WAYANAD 8 76 15 880.5 2 540 69 6683 94 8.20 8179.5 7.02

KANNUR 28 451.2 29 1749.3 0 0 12 4795 69 6.02 6995.4 6.00

KASARGODE 21 229.4 62 3192.4 1 800 0 0 84 7.32 4221.9 3.62

GRAND TOTAL 352 8292.9 428 34838.8 44 26583 323 46861

1147 100

116543.2 100

% analysis 30.6

9 7 37.

3 29.9 3.8

4 22.81 28.

2 40.21

Number of application in MSME's=824 (72%)

Amount of application in MSME's=69714.6 (60%)

BRANCH WISE BREAKUP OF LOAN OPERATION DURING THE YEAR 2013-2014

Effective sanction

MICRO SMALL MEDIUM OTHERS TOTAL

BRANCH NO. AMOUNT NO

AMOUNT NO

AMOUNT NO

AMOUNT

NO %of NO

AMOUNT

%of amt

TVM 36 1946 85 2644 17 9974 0 0 13

8 12.03 14561 12.49

KOLLAM 11 117 17 1659 5 3630 0 0 33 2.88 5406 4.64

PTA 18 822 14 1553 15 5359 0 0 47 4.10 7734 6.64

ALP 11 151 7 889 0 0 23 2517 41 3.57 3561 3.06

KOTTAYAM 18 349 11 1465 1 200 13 2587 43 3.75 4601 3.95

IDUKKI 33 1710 1 33 0 0 0 0 34 2.96 1743 1.50

THODUPUZHA 6 90 25 1725 0 0 0 0 31 2.70 1815 1.56


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ERNAKULAM 12 103 8 1853 0 0 67 10123 87 7.59 12079 10.36

PERUMBAOOR 7 59 33 2002 0 0 17 648 57 4.97 2708 2.32

TRISSUR 15 80 21 1223 3 522 48 3960 87 7.59 5785 4.96

PALAKKAD 20 195 10 1757 0 0 32 2605 62 5.41 4558 3.91

MALAPPURAM 35 481 34 4406 1 334 14 1364 84 7.32 6586 5.65

KOZHIKODE 55 879 34 2572 1 1500 30 7070 12

0 10.46 12021 10.31

WAYANAD 9 79 17 768 1 400 64 4425 91 7.93 5671 4.87

KANNUR 30 471 22 1461 0 0 14 4145 66 5.75 6076 5.21

KASARGODE 21 219 62 3038 1 800 0 0 84 7.32 4057 3.48

GRAND TOTAL 337 7751 401 29048 45 22719 322 39444

1105

96.33827 98962

84.91444

% analysis 29.3

8 7 36.28

96 29.4 4.072

4 22.96 29.1

4 39.86

Number of application sanction in MSME's=783 (70.85%)

Amount of application sanction in MSME's=59518 (60.14%)

HIGHLIGHTS OF PERFORMANCE

2008-09

2009-10

2010-11

2011-12

2012-13

AAG

Application Received No. 619 855 702 694 721 5.75

Application Received Amount 43658 79947 59699 64294 77271 21.42

Application Sanctioned No. 580 759 742 634 639 3.71

Application Sanctioned Amount 34910 61593 50706 53901 66139 21.94

Disbursement Amount 29394 41953 44344 46457 47592 13.91

Recovery Amount 26925 29954 35473 46717 47592 15.81

Arrears Amount 7741 4751 4352 2788 3241 -16.68

No. of loan accounts 6309 5949 6049 5985 6114 -0.73

Balance outstanding amount 70353 88839 112481 123984 140143 19.04

Interest o Loans 10192 9196 12064 15730 25294 28.15

Other income 734 6599 4534 5695 476 175.43

TOTAL 10926 15795 16598 21425 25770 24.75

Expenditure-Int.on Bonds 1124 960 759 1043 2111 26.07

Interest on Refinance 2913 3776 4217 3996 3830 7.98

Fund raising financial Expenses 98 174 1166 244 241 141.84

Interest on other borrowings 10 3 854 3170 2760 7138.73

Pay &Allowance etc. 2408 1978 2463 1792 2317 2.18

Establishment expenses 211 138 410 402 438 42.38

TOTAL 6764 7029 9869 10647 11697 15.52


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CONCLUSION

Ever since its inception in 1956, the KFC has

been discharging various financial operations to the

industrial sector of the State. By now, it has twenty branch

offices across the State with the Head Office at

Thiruvananthapuram. The management of this public

sector undertaking is vested in the Board of Directors

having thirteen members. The Chairman, who is

accountable to the Board, is placed at the top..The KFC

still functions as a Government undertaking. The majority

of its shares in value are held by the Government of Kerala

(97.06 per cent). Its capital structure consists of both own

capital and borrowed capital. It gives more weightage to

debt capital. Capital to Risk - weighted Assets Ratio

(CRAR) was at 21.57 % during the year 2013-14, as

against the minimum of 9% prescribed. , Corporation could

make significant improvement in its performance in all

major operational areas, viz, Sanction, (AAG

44.51)Disbursement(AAG38.16) and

Recovery(AAG12.22). Schemes of financial assistance of

the Corporation cover a series of activities ranging from

manufacture to marketing of goods and services. Regarding

the trend of loan operations, the role of the KFC in the

process of industrialisation is found to be increasing year

by year as the total amount disbursed. When the trend of

size-wise analysis of its operations is made, it is seen that

the KFC prefers assistance to MSME’s at 60% . Also, it is

seen that it prefers financial assistance to the industrial

units of non-backward districts. Regarding the choice of

industry for assistance, it gives serious concern to disburse

the loans only to the promising / prosperous industries.

Facts reveal that on the average, 60.14 per cent of

applications are sanctioned each year. The KFC has the

precedence of giving a Morotorium during the gestation

period for loan repayment. The repayments are scheduled,

taking into account various things associated with the

performance of the borrower units.To conclude, the

enterprises are assisted at every stage in their promotions

and operations. Different schemes to suit the needs of the

diverse investors are offered by the Corporation. This

study is concerned with an investigation into how far the

units approach KFC to obtain financial assistance and how

far they succeeded with this source of finance

References

A.) Annual Report of KFC (2005-2014)

B) KFC Official Website

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[11] Purohit, R. J., Bhanwar Sing, Financial Management in

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[12] Padmakumar, K., Business Plans for KFC : Futuristic

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[13] Sing, Ram Chandra, ‘Bihar State Financial Corporation : An

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Performance of Kerala Financial Corporation (KFC) for Promoting of MSMEs in Kerala

Economy & Finance

Transcript of Performance of Kerala Financial Corporation (KFC) for Promoting of MSMEs in Kerala