40% loans to 4 govt controlled entities
CL Jose
THIRUVANANTHAPURAM: Kerala Financial Corporation (KFC), one of the best-run non-banking financial companies (NBFCs) in the public sector in the country, may have to look for newer avenues to shore up its capital base in order to maintain its growth momentum going forward.
While technically said, KFC needs to bring down its debt-equity ratio from a high of 6.53 in order to stay healthy financially, it could also be explained that KFC’s borrowings are close to 7 times its own capital base or net worth.
Kerala government owns 99 per cent of KFC with the remaining minuscule stake divided among Small Industries Development Bank of India (SIDBI), SBI and LIC in the same order.
It goes without saying that Kerala Government is not in a favourable position to bring in additional capital notwithstanding the fact that the Finance Minister, KN Balagopal, has announced a fresh infusion of Rs100 crore by the government while presenting the state budget last month.
Govt willing to dilute stake
The next practical option could be to bring capital from outside investors. Will Kerala Government dilute its stake in KFC in the near future?
According to finance experts that bbn spoke to, KFC needs to strengthen its capital base in order maintain a healthy debt-equity ratio.
Currently the corporation sits on a relatively high debt-equity ratio which though not viewed as too dangerous for a non-deposit taking NBFC, may not be advisable in the long run.
If the ratio needs to be eased or brought down, KFC will have to increase its capital base or net worth from the current Rs1065 crore,, which includes the Rs200 crore infused by the government last year.
Interestingly, it has been learnt that the government has already given the mandate to KFC management to reduce its stake down to 75 per cent by attracting capital from outside investors such as public sector banks or other companies majorly owned by the government.
Though bbn contacted KFC officials on the possibility of Kerala government diluting its stake in KFC in the immediate future, a concrete response was not available on this.
Bad loans
KFC’s bad loans or the non-performing assets (NPAs) though may not raise any red flags per se right now, could lead to concerns if not checked in time. While the gross NPA as of December end, 2023 stood at 5.61 per cent, the net NPA hovers around 3.54 per cent.
The corporation that reported a net profit of Rs82.38 crore for the third quarter, KFC’s capital to risk weighted assets ratio or capital adequacy ratio (CAR) stays at a very healthy 23.90 per cent.
Loan concentration
Though it’s said that KFC stands to meet the loan requirements of the common man, almost 40 per cent of its loan book, at Rs2784.28 crore, has been created in favour of four government controlled entities – KIIFB, Kerala Social Security Pension Lrtd (KSSPL), Vizhinjam International Seaport Ltd (VISL) and KSEBL.
