KOCHI/February -19-2024: The decision to inject a fresh Rs100 crore into the capital of Kerala Financial Corporation (KFC) though will help soften its capital strain for the time being, is unlikely to be a long-term solution, according to analysts.
It’s true the new funding from the government will reduce the gearing ratio of KFC from 7.1 per cent to 6.4 per cent, the ratio will still remain on the higher side.
The new fund infusion will enhance the equity capital of KFC from Rs973.34 crore to Rs1073.34 crore subsequently improving the gearing ratio or leverage marginally.
KN Balagopal, the finance minister of Kerala, announced the infusion of fresh Rs100 crore into KFC capital while presenting the Kerala budget for the financial year 2024-25 (FY25).
The budget presentation has also witnessed an amount of Rs300.73 crore being infused to Vizhinjam Port, Cochin Metro and Kannur Airport for the ‘smooth and time-bound execution of major projects at these entities’.
It was a few months bank, the government of Kerala infused Rs200 crore into KFC’s capital base in order to improve its gearing ratio and thus lessen the strain on capital base.
According to financial experts, even the fresh capital infusion of Rs100 crore will not suffice to make KFC’s capital position comfortable.
“Even 6.46 times gearing ratio is not a healthy number as far as a lender is concerned. It has to improve further to a lower number in order for the corporation to increase its loan book further,” said a financial analyst based in Kochi.
That said, there are analysts who view KFC’s loan book as having concentration of Government-related entities. While Kerala Infrastructure Investment Fund Board (KIIFB) has a loan outstanding of Rs916.68 crore with KFC, the government-owned corporation’s exposure to Kerala Social Security Pension Ltd (KSSP) is at Rs500.13 crore and Vizhinjam International Seaport Ltd’s (VISL) at Rs 418.69 crore, whereas the loan exposure to Kerala State Electricity Board (KSEB) is a much larger Rs1018.06 crore as of September 30, 2023.
These four loans account for more than 40 per cent of the corporation’s loan book.
