THIRUVANANTHAPURAM: Kerala Financial Corporation (KFC), set up to promote industrial growth and strengthen the MSME manufacturing sector, appears to be drifting from its founding purpose.
The corporation’s latest figures show that nearly 83 per cent of its total loan portfolio is now concentrated in the services sector, while only about 13 per cent goes to manufacturing. More seriously, nearly one-fourth of the KFC exposure is towards large public sector undertakings (PSUs) such as the Kerala Infrastructure Investment Fund Board (KIIFB), Kerala Social Security Pension Ltd (KSSPL), Kerala State Electricity Board (KSEB).
Though there was a few hundreds of crore rupees exposure to Vizhinjam International Seaport Ltd (VISL), of late, that has been settled.
As of June 30, 2025, lending to government-owned entities stood at Rs2,706.70 crore, accounting for roughly 28 per cent of KFC’s total loan book of Rs9,777.70 crore.
This trend indicates that a significant portion of KFC funds – both directly and indirectly – is flowing towards the government ecosystem, either through PSUs or service-oriented projects, rather than towards the MSMEs it was primarily created to support.
The timing of this shift also carries broader fiscal implications. The Centre has repeatedly objected to the Kerala government’s practice of borrowing outside the state budget through entities such as KIIFB and KSSPL.
Yet, these two agencies have sharply raised their borrowings from KFC since FY24. KIIFB’s exposure increased from Rs833.35 crore to Rs 1,166.75 crore in FY25, while KSSPL’s jumped from Rs650 crore to Rs1,000 crore.
Though Vizhinjam International Seaport Ltd has since settled its Rs352.57 crore loan with KFC during the first quarter of FY26, the overall exposure to state-linked undertakings remains substantial.
Drifting away from manufacturing
KFC’s official mandate, as stated in its reports, is to “boost industrial growth in the state by strengthening the MSME sector,” with a vision “to emerge as the best performing financial institution by creating an integrated development support for the industrialisation of Kerala with a special focus on MSMEs.”
However, the lending pattern suggests a growing disconnect between this vision and its operational focus.
With the bulk of its portfolio now tilted towards the services sector and government-linked institutions, KFC seems to be functioning less as a catalyst for manufacturing-led industrialisation and more as a convenient funding channel within Kerala’s wider public finance framework – partly serving as an extension of the state’s off-budget financing strategy.
