Access to deposits only after GNPA falls below 4 pc
KOCHI: The prolonged issue of high non-performing assets (NPA) ratio has been the real stumbling block to the growth of Kerala Financial Corporation (KFC), which is a 97.19 per cent owned entity of Government of Kerala.
The RBI restriction that KFC cannot raise public deposits unless its gross NPAs are contained below 4 per cent leaves the state financial corporation (SFC) with no option other than depending on the credit lines from banks and the non-SLR bonds for its funding requirements, which obviously would come at a price.
The net profit of Rs8.30 crore KFC has earned for 2017-18 is still a far cry from what an institution with an asset base close to Rs3000 crore should have achieved.
The biggest initiaitve from the management side this year has been the rationalising of interest rates by establishing a base rate, which the Corporation believes, would drive down its future lending rates.
Though KFC has announced that it would now benchmark its lending to a base rate of 9.5 per cent, the dilemma is that the new rate regime not only fails to hand out a comfortable net interest margin (NIM) to KFC, but would still lag behind the banks in offering competitive rates.
However, KFC hopes that soon it could bring down the NPA ratio to comfortable levels enabling the corporation to access less expensive funds.
With total assets of Rs2814.92 crore and a net worth of Rs441.08 crore, KFC’s return on equity (RoE) for 2017-18 works out a low 1.88 per cent, up from 1.30 per cent in the previous year, and a return on assets (RoA) of just 0.3 per cent.
The credit lines KFC has established with banks and the non-SLR bonds it has issued in the market are not inexpensive compared with public deposits that are available at rates around 7 or 8 per cent.
The aggregate outstanding LOC from banks and other financial institutions at the year-end was to the tune of Rs1266.26 crore at a weighted average cost of 8.66 per cent.
The corporation has issued secured, rated, redeemable, taxable, non-convertible bonds of Rs250 crore at the rate of 8.69 per cent with credit enhancement mechanism during the year without government guarantee. The total outstanding bonds of KFC as on March 31, was pegged at Rs700 crore.
Through concerted efforts put in by the management on recoveries, loan settlements and write-offs, KFC has been able to bring down the NPA ratio from 10.57 per cent in 2015-16 to 8.81 per cent as of 2016-17-end and thereafter to 6.37 per cent as the financial year 2017-18 closed.
For the current year, the corporation targets sanctions of Rs1200 crore, an increase of 66 per cent, so as to increase the book size to Rs3000 crore.
“We plan to disburse around Rs1000 crore to the manufacturing, IT and other service sectors. Several steps are being taken to improve the quality of loan portfolio by reviewing and recovering non-performing assets,” said Sanjeev Kaushik, the CMD of KFC.
KFC has written off NPAs worth Rs124.81 crore during 2017-18, after having written off close to the same amount during the previous year too. KFC continued to concentrate on the recovery front to improve collections so as to reduce NPAs, and this, KFC claims, has yielded positive results.
KFC has effectively taken on a cleansing operation of its loan book. “The whole of ‘doubtful’ category loans until 2015-16 were technically written off, whereas for 2016-17, only about 67 per cent of ‘doubtful’ category was technically written off and 60 per cent provision was made for the remaining ‘doubtful’ category advances, which were not technically written off,” KFC explained in its directors’ report.
However, during 2017-18, all the doubtful advances have been technically written off and charged to revenue to maintain asset quality.
KFC has put in place effective recovery strategies, and as a result, recovery has touched an all-time high of Rs944.67 crore during the year. At the same time, through a cautious approach quality loans were sanctioned, thereby achieving a growth rate of 88 per cent over the previous year.
“I am sure that these efforts would definitely enable KFC to secure a better credit rating, thereby lowering the cost of funds, lending at competitive rates and increasing its loan portfolio. The endeavor of the Corporation shall be to become the best SFC of the country,” said the finance minister, Dr Thomas Isaac.