KOCHI: In what appears to be a classic case of ‘smoke and mirrors’, the Kerala government recently declared that it had increased the share capital of the Kerala State Financial Enterprises (KSFE), a fully Kerala government-owned entity, from Rs100 crore to Rs200 crore “to support its business expansion.”
Sounds like a smart move — until you follow the money.
There was no fresh capital infused. No budget allocation. Not even a symbolic cheque. Just an internal book entry: a 100 per cent bonus issue carved out of the Corporation’s own reserves. In plain terms, the government gave nothing — and got double in return.
The gimmick explained
KSFE, a state-regulated non-banking financial institution, has been performing robustly. As of FY24, it had a net worth of Rs1,546.58 crore on a modest paid-up capital of Rs100 crore. In FY25, KSFE posted a healthy net profit of Rs512 crore — from which it paid Rs35 crore to the government as dividend, in line with its policy of 35 per cent pay-out on share capital.
But with the bonus issue doubling the share capital to Rs200 crore — again, without any real infusion — the government now stands to pocket R 70 crore next year, assuming the same 35 per cent dividend rate holds.
So while nothing changed for KSFE operationally or financially, the government quietly secured a bigger payday.
“Support” that costs nothing — but gains plenty
The Finance Minister, KN Balagopal, in a recent media interaction reported by Malayala Manorama and others, framed the capital hike as government “support” to KSFE. But if support comes without a single rupee actually moving, and the result is a doubled dividend pay-out to the government itself, what exactly is being supported here — the institution or the state’s own finances?
This wasn’t a cash injection. It was a reshuffle of accounting labels — and yet it was presented as a capital augmentation to fuel business growth.
Let’s be clear: a bonus issue does not improve capital adequacy. It doesn’t expand lending capacity. It doesn’t enhance risk buffers. It changes the composition of equity, not the quantum.
Which means KSFE is exactly as strong (or weak) as it was before this manoeuvre. Only the dividend outflow has changed — and that too, in favour of the government.
Real questions
It raises some uncomfortable questions:
- Did the Finance Minister misunderstand the implications of the move?
- Was it a deliberate attempt to project a paper adjustment as fiscal support?
- Did the media fail to ask the right follow-ups?
