ISSN: 0374-8588

Volume 21 Issue 2

_______________________________________________________________________________________________

An Analysis of Loan operations and Financial

Performance of Kerala Financial Corporation (KFC)

Dr. B. Seetha Devi,

HOD, Department of B.COM (CA) and M.COM
AJK College of Arts & Science,
Coimbatore

Abstract: The present research work is undertaken to analyze the financial statement of Kerala Financial Corporation
.To accomplish the aforesaid objectives data is gathered from annual report of KFC and used ratio analysis technique
for data analysis. This research paper is based on the last 6 years made by KFC 2012-13 to 2017-18.On the basis of
findings this paper suggesting for the KFC to maintain the control over its operating expenses which will otherwise
going to the major limitation of the profitability .It is also suggested for the KFC to take utmost care in providing
better returns to its equity shareholders. The KFC is taken proper measure to control NPA for the last few years ,still
more vibrant measure should take ,so that NPA of the corporation completely eliminated.

Keywords: SFC, KFC, Financial Statement, Ratio analysis, AAG, NPA etc.

_______________________________________________________________________________________________

1. INTRODUCTION

The need for development financial institution was felt very strongly instantly after India attained
independence. The country needed a strong capital goods sector to support and accelerate the pace of
industrialization .The existing industries required long-term funds for their reconstruction, modernization,
expansion and diversification programmes while the new industries required enormous investment for
setting up huge projects in the capital goods sector .However ,there were gaps in the banking system and
capital markets, which needed to be filled to meet this enormous requirement offends. Hence ,the necessity
for setting up regional financial institutions to cater to the needs of small and medium enterprises was
recognized.

Accordingly the State Financial Corporation Act was passed in 1951 for setting up State Financial
Corporation (SFCs) in different states .By 1955-56,12 SFCs were set up and by 1967-68;all the 18 SFCs
now in operation came into existence .SFCs extend financial assistance to small enterprises . Kerala
Financial Corporation has played a pioneer role in the development of micro ,small and medium scale
enterprises in the state of Kerala

2. INCEPTION OF THE KFC

Kerala Financial Corporation has been set up under the State Financial Corporation Act 1951
to meet the credit needs of small and medium scale industrial units by advancing the loans to the state of
Kerala. It has fulfilled the objective of developmental lending such as promoting the entrepreneurship
,industrial development in the backward area ,assistance to young and women entrepreneurs ,assistance to
technocrats and traditional entrepreneurs etc. The Kerala Financial Corporation has been established with a
159
 ISSN: 0374-8588
Volume 21 Issue 2

_______________________________________________________________________________________________
view to financing, promoting and rehabilitating the small and medium enterprises. It is the premier
institution for industrial finance in the State. Also, in the absence of a developed capital market in Kerala,
the DFIs are still the major source of the much needed long-term finance to the MSMEs. With the decline in
the number of DFIs, due to the ceasing of the ICICI and the IDBI as DFIs, in the face of financial sector
reforms, innovative financing mechanism of the remaining State level DFIs is expected to take care of the
need of project financing

3. REVIEW OF LITERATURE

Rachchh Minaxi A (2011),in his research article on financial performance has pointed and
suggested that the financial statement analysis involves analyzing the financial statement to extract
information that can facilitate decision making .It is the process of evaluating the relationship between
component parts of the financial statements to obtain a better understanding of an entity’s position and
performance.

John J.Wild ,K.R Subramanyam and Robort F.Halsey (2006),They pointed out the financial
Statement analysis is the application of analytical tools and technique to general –purpose financial
statements and related data to derive estimates and inferences useful in business analysis .It reduces the
uncertainty of business analysis.

Susan Ward (2008),in her research article on financial performance she has pointed that emphasis that
financial analysis using ratios between key values help investors cope with massive amount of numbers in
company financial statement

C. Ganesh (1993) , makes a comparative study of the performance of the SFCs of Kerala, Tamil
Nadu, Karnataka and Andhra Pradesh. In his view , the time gap existing in the processing of application is
so wide that most entrepreneurs do not get support on time. Ganesh also finds that the KFC-aided units
have defaulted in repaying the loans while the bulk of the corresponding units in the other group of SFCs are
found to be prompt in discharging their debts

Singh Arora and Anand (1991), analyzed in their work entitled ‘Performance Evaluation of SFC :A
comparative operational and financial performance of Punjab Financial Corpoartion (PFC) and Haryana
Financial Corporation(HFC) .It reveals from the performance of PFC is better than that of HFC.PEC seems
to have an edge over HFC with respect to over –dues ,percentage of loan outstanding and recovery
performances .

4. NEED FOR THE STUDY

KFC has been set up with view to providing medium and long –term finance to Micro ,Small and
Medium enterprises in the state of Kerala .KFC is playing the major role in the state of Kerala for promoting
MSME sector .The need of the study is to analyze the financial statement whether progress has been made
or not by the KFC

5. OBJECTIVE OF THE STUDY

1. To analyze and evaluate the loan operational performance of Kerala Financial Corporation

160
 ISSN: 0374-8588
Volume 21 Issue 2

_______________________________________________________________________________________________
2. To study about the financial performance of Kerala Financial Corporation (KFC)

6. LIMITATION OF THE STUDY

1. The present study confined to Kerala Financial Corporation
2. Study is limited for the period of six years
3. The study does not contain the comparison of the Financial Statement of said corporation with
4. other SFCs
7. RESEARCH METHODOLOGY

The study is based only on secondary data ,it have been collected from the official website of KFC
and Ministry of Finance ,Published annual report s, manuals and pamphlets

8. TOOLS USED FOR DATA ANALYSIS

To achieve the aforesaid objectives the data is analyzed by using ratio analysis technique and
percentage

9. DATA ANALYSIS AND INTERPRETATION

A. Loan Operational Performance

Loan operational activity include loan sanctioned ,loan disbursement ,loan recovery and non
performing assets(NPA) of Kerala Financial corporation during the year 2012-13 to 2017-18

Table No.1

Loan Operational Performance of KFC Rs.in

Crores

Loan operations 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 AAG*

sanctioned 661 990 948 1026 385 724

13.22
Disbursement 476 755 657 838 655 600
7.16
Recovery 540 565 684 758 874 945
9.99
Net NPA (%) 0.36 0.35 3.71 5.93 4.25 2.03
156.08
Source: Annual report of KFC

*AAG=Average Annual Growth

Interpretation

The above table depicts the loan operations of KFC,during the study period loan sanctioned,
disbursement and recovery has been shown upward movement. Loan operations and also disbursement had

161
 ISSN: 0374-8588
Volume 21 Issue 2

_______________________________________________________________________________________________
shown in the first four years as remarkable increase thereafter it had shown decreasing trend in fifth year
then it had shown increasing trend in the last year.NPA of the organization also shown increasing trend.

B. Financial Performance

1.Net Profit Ratio: The net profit ratio is the overall measure of firm’s ability to turn each rupee of sales
into profit. It indicates the efficiency with which a business is managed. A firm with a high net profit ratio is
in an advantageous position to survive in the face of rasing cost of production and better performance .In the
same way decrease in the ratio indicates managerial inefficiency. The ratio is calculated with the following
formula:

Net Profit Ratio=Net profit after tax/Revenue x100

Table No.1

Net Profit Ratio of KFC

(Rs.in lakhs)

Year Net profit Revenue Net Profit

after tax Ratio(%)
2012-13 6683 25770
25.93
2013-14 4134 26619
15.53
2014-15 1437 31082
4.62
2015-16 533 30847
1.73
2016-17 787 36473
2.16
2017-18 1504 37688
3.99
Source: Annual report of KFC

Interpretation

The above table depicts the Net Profit Ratio of KFC, in the year 2012-13 had the maximum value of
net profit, there after it shows decreasing trend .In the year 2015-16 had the lowest rate of net profit. In the
year 2017-18 Corporation tried to come out of continues decrease and resulted with to increase.

2.Return of Equity Capital Ratio

This ratio establishes the relationship between the net profit available to equity shareholders and the
amount of capital invested by them

162
 ISSN: 0374-8588
Volume 21 Issue 2

_______________________________________________________________________________________________
Return on Equity=Net profit/Equity capital x100

Table No.2

Return of Equity Capital Ratio of KFC

Year Net profit Equity Return of

after tax Capital Equity
Capital
Ratio(%)
2012-13 6683 21197 31.53
2013-14 4134 21197 19.50
2014-15 1437 22186 6.48
2015-16 533 22186 2.40
2016-17 787 22186 3.55
2017-18 1504 22186 6.78
Source: Annual report of KFC

Interpretation

Table no. 2 shows the return on equity capital of KFC, in the year 2012-13 it had maximum return
thereafter decrease the percentage. This ratio shows the profit percentage of equity share capital .A high rate
of return on equity shareholders funds is favorable by the investors

3. Operating Ratio

The operating ratio is the yardstick to measure the efficiency with which an organization is
operated. It shows the relationship between operating cost and revenue .A high operating ratio is considered
unfavorable because it leaves a smaller margin of profit to meet non-operating expenses .On the other hand
,a lower operating ratio is considered a good sign.

Operating Ratio=Operating cost/Revenue x 100

Table No.3

Operating Ratio of KFC

Year Operating Revenue Operating

Cost Ratio
2012-13 11697 25770 45.39
2013-14 13797 26619 51.83
2014-15 17492 31082 56.28
2015-16 20125 30847 65.24
2016-17 23440 36473 64.27
2017-18 23092 37688 61.27
Source: Annual report of KFC

163
 ISSN: 0374-8588
Volume 21 Issue 2

_______________________________________________________________________________________________
Interpretation

The above table depicts the operating ratio of the KFC. Operating ratio was increasing year by
year, it has been adversely affecting the profitability of the organization.

4. Return on Net worth Ratio

This ratio measures the overall profitability .It shows the relationship between net profit and net
worth of the organization. This ratio indicates how well the management has utilized the funds supplied by
the owners and creditors .In other words ,this ratio is intended to measure the earning power of the net
assets of the business.

Return on Net worth=Net profit/Net worth x 100

Table No.4

Return on Net worth Ratio of KFC

Year Net profit Net worth Return on Net

Worth
Ratio(%)
2012-13 6683 38376 17.41
2013-14 4134 41484 9.96
2014-15 1437 42392 3.39
2015-16 533 42917 1.24
2016-17 787 43545 1.81
2017-18 1504 44108 3.41
Source: Annual report of KFC

Interpretation

Return on net worth was shown decreasing trend, earning power of the net asset of the
business is decreasing but in 2017-18 it had slight increase

5. Other Financial Performance

Ratios 2012- 2013-14 2014- 2015-16 2016- 2017- Average

13 15 17 18
Current Ratio 2.56 2.45 2.38 1.95 1.78 1.56 2.11
Quick Ratio 2.15 2.11 1.99 1.67 1.32 0.98 1.70
Debt-Equity Ratio 4.50 4.76 4.15 3.74 2.98 4.50 4.10

164
 ISSN: 0374-8588
Volume 21 Issue 2

_______________________________________________________________________________________________
Interpretation

Current Ratio: It throws good light on the short- term financial position and policy .It is an indicator of a
firm’s ability to promptly meet its short-term liabilities .Normally a current ratio of 2:1 considered
satisfactory so the KFC current ratio is satisfactory.

Quick Ratio: This ratio is a more severe test of liquidity of a company than the current ratio .It shows the
ability of a business to meet its immediate financial commitments. Generally a quick ratio of 1:1 is
considered to represent a satisfactory current financial position ,so the quick ratio of the corporation is
satisfactory .

Debt –Equity Ratio: This ratio shows the relative amount of funds supplied to the company by owners. A
law debt equity ratio implies a greater claim of owners on the assets of the company than the creditors .On
the other hand ,a high debt equity ratio indicates that the claims of the creditors are greater than those of the
owners .The debt equity ratio of 1:1 is generally acceptable ,so the debt equity ratio of the KFC during the
period of time was not satisfactory

10. CONCLUSION:

The Kerala Financial Corporation played a pioneer role in the development of MSME sector in
the state of Kerala .The financial statement reflect the efficiency with which the activity of a KFC has been
undertaken .At last it can be concluded that by suggesting for the KFC to maintain the control over its
operating expenses which will otherwise going to the major limitation of the profitability .It is also
suggested for the KFC to take utmost care in providing better returns to its equity shareholders since they are
the major provider of capital and other continues support for the survival of the corporation .Debt-equity
ratio of the corporation is not satisfactory so reduce debt financing and reduce the fixed financial burden
.The KFC is taken proper measure to control NPA for the last few years ,still more vibrant measure should
take ,so that NPA of the corporation completely eliminated.

REFERENCE

[1] Aditi Gurung , Sangeetha Priyadarshini and Binu Margaret E. Knowledge of Sexual Harassment
among the Undergraduate students in Udupi district. Nitte University Journal of Health Science.
2016; 6(2): 4-9.
[2] Hussin Jose Hejase. Sexual Harassment in the Workplace: An Exploratory Study from Lebanon.
Journal of Management Research. 2015; 7(1): 107-121.
[3] Syeda Rownak Afza and Mohammad Khaleq Newaz. Factors Determining The Presence Of Glass
Ceiling And Influencing Women Career Advancement In Bangladesh. BRAC University Journal.
2008; V(1): 85-91.
[4] Quinlan, C. Women's career development: The lived experience of Canadian university women
presidents. 2012.
[5] Indra Devi Subramaniam and Tanusia Arumugam. Barriers To Women Managers’ Career
Progressions In Malaysian Government Link Companies (Glcs). Australian Journal of Basic and
Applied Sciences. 2013; 7(2): 248-256.

165