KOCHI: Kerala Financial Corporation (KFC) has ended FY26 in an unusual position: its financial strength has improved significantly, even as its dependence on borrowed money remains high.
KFC's net worth rose to around Rs1,513 crore during FY26, while its loan portfolio crossed the Rs9,000-crore mark to reach Rs9,080.65 crore. Its capital adequacy ratio also strengthened to 30.70 per cent, indicating a sizeable capital cushion.
Yet leverage remains substantial. KFC's borrowings from banks and financial institutions, together with its non-SLR bonds and NCDs, stood at about Rs8,851 crore at the end of March 2026. In other words, the corporation is deploying a balance sheet several times larger than its own capital base.
This is not unusual for a financial institution. The more interesting question is how KFC has been able to sustain such leverage while simultaneously strengthening its capital position.
The answer lies partly in continued support from the Kerala government.
The government infused Rs200 crore into KFC in March 2025, which helped improve its gearing from 6.89 times in FY24 to 5.88 times in FY25. It subsequently sanctioned another Rs73.50 crore in March 2026 to take KFC's paid-up capital towards Rs1,000 crore.
Highly leveraged
The effect is important. Government equity does not directly finance the entire expansion in lending. Rather, it strengthens KFC's capital base, allowing the institution to maintain its capital ratios while raising substantially larger sums from banks and the bond market.
KFC's FY26 numbers show how far this model has expanded. Against the Rs9,080.65-crore loan portfolio, outstanding bank and financial institution loans stood at Rs7,171.86 crore and NCDs and other non-SLR bonds at Rs1,679.50 crore.
The paradox, therefore, is not that KFC is financially weak. It is that a financially stronger KFC is also a highly leveraged KFC.
That makes the quality of its loan book and the robustness of its internal controls increasingly important. And here, the annual report contains some cautionary signals: auditors have flagged gaps in collateral revaluation, IT and data controls, KYC documentation and other accounting and control processes.
For KFC, then, the next challenge may not simply be to grow the loan book. It is to ensure that the increasingly large balance sheet remains as strong as the capital supporting it.
