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

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Performance of Kerala Financial Corporation (KFC) for
Promoting of MSMEs in Kerala
1
Dr.C.Sankar and 2
Vinod K.Raju,
1
Assistant Professor, 2
Research Scholar,
1,2
Department 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.
AMOUN
T NO
AMOUN
T NO
AMOUN
T NO
AMOUN
T NO
%of
NO
AMOUN
T
%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
THODUPUZH
A 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
PERUMBAOO
R 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
MALAPPURA
M 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
114
7 100
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.
AMOU
NT NO
AMOU
NT NO
AMOU
NT NO
AMOU
NT
N
O %of NO
AMOU
NT
%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
THODUPUZ
HA 6 90 25 1725 0 0 0 0 31 2.70 1815 1.56

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ERNAKULA
M 12 103 8 1853 0 0 67 10123 87 7.59 12079 10.36
PERUMBAO
OR 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
MALAPPUR
AM 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
KASARGOD
E 21 219 62 3038 1 800 0 0 84 7.32 4057 3.48
GRAND
TOTAL 337 7751 401 29048 45 22719 322 39444
11
05
96.338
27 98962
84.914
44
% 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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