Press Release

Press Release

June 23, 2026

KARNATAKA STATE FINANCIAL CORPORATION
Rating Reaffirmed

Product	Quantum (Rs. Cr) (SEBI)	Quantum (Rs. Cr) (Other FSR)	Long Term Rating	Short Term Rating	Regulated By
Bank Loan Ratings	0.00	1000.00	ACUITE AA \| Stable \| Reaffirmed	-	RBI
Total Outstanding	0.00	1000.00	-	-	-
Total Withdrawn	0.00	0.00	-	-	-

Note:- For activities or ratings of instruments falling under the purview of Financial Sector Regulators other than SEBI, the grievance / dispute redressal mechanisms and investor protection mechanisms provided by SEBI shall not be available.

Rating Rationale

Acuité has reaffirmed a long-term rating of ‘ACUITE AA’ (read as ACUITE double A) on the Rs. 1000.00 crore bank facilities of Karnataka State Financial Corporation. The outlook is ‘Stable’.

Rationale for Rating
The rating continues to derive strength from strong parentage of Government of Karnataka (GoK) holding 96.14 percent stake as on March 31, 2026 and the continued capital support extended to KSFC at regular intervals. However, during FY2025 and FY2026, there has been no equity infusion by Government of Karnataka (GoK). KSFC has still been able to maintain comfortable capitalization levels, as denoted by a CRAR of 59.00 percent (provisional) as on March 31, 2026, of which Tier 1 Capital is 55.72 percent. The entity also maintains low gearing levels at 0.36 times (provisional) as on March 31, 2026. The rating favourably factors adequate liquidity position of KSFC to meet its current obligations and moderate profitability. KSFC’s PAT improved to Rs. 127.47 Cr. (provisional) during FY2026 as compared to Rs. 110.51 Cr. during FY2025. KSFC’s loan portfolio increased to Rs. 2,316.33 Cr. (provisional) as on March 31, 2026 from Rs. 2,163.82 Cr. as on March 31, 2025 fuelled by disbursements of Rs. 722.15 Cr. (provisional) during FY2026.
These strengths are partially offset by moderate asset quality parameters marked by GNPA and NNPA of 6.01 percent (provisional) and 1.58 percent (provisional) respectively as on March 31, 2026 and low momentum in AUM as a result of low disbursals in FY26. Going forward, continued support from GoK, KSFC’s ability to profitably grow its loan portfolio while containing additional slippages will be a key monitorable.

About the company

Karnataka State Financial Corporation (KSFC) was established in 1959 under the SFCs’ Act, 1951 to provide long term loans to Micro, Small and Medium Enterprises (MSMEs) in the State of Karnataka. The loans are provided for establishment of new industries and expansion, modernization, diversification of existing industries. The corporation plays a pivotal role in the balanced regional development, empowerment of women, first generation entrepreneurs and socially disadvantaged sections of the Society.
Government of Karnataka (GoK) is the majority stakeholder with 96.14 percent holding, 3.84 percent held by SIDBI and the balance is held by banks and other financial institutions. As on March 31, 2026, the corporation operates in 30 districts of Karnataka with a network of 32 branches. Sri. S.S. Nakul IAS is the current Managing Director of KSFC.

Unsupported Rating

Acuite BBB+/Stable

Analytical Approach

Acuité has considered the standalone approach while assessing the business and financial risk profile of KSFC and has factored in the financial and managerial support it receives from Government of Karnataka by virtue of being a State Financial Corporation. The rating factors in the high degree of government holding, existing and proposed guarantee of borrowings for KSFC.

Key Rating Drivers

Strength

Ownership and Support from Government of Karnataka
KSFC is a state finance corporation established under the SFC Act, 1951. 96.14 percent shareholding is held by Government of Karnataka followed by 3.84 percent held by SIDBI and balance is held by banks and financial institutions, as on March 31, 2026. The primary objective of KSFC is to provide loans for establishment of new industries and expansion, modernization, diversification of existing industries in the state of Karnataka. It also has various entrepreneurial schemes to support various entrepreneurs. The board of KSFC primarily comprises representation from Government of Karnataka. The Board of Directors comprises of four bureaucrats appointed by the Government of Karnataka and the others representing SIDBI, LIC of India, Apex Bank and a Chartered Accountant.
KSFC’s loan portfolio increased to Rs. 2,316.33 Cr. (provisional) as on March 31, 2026 from Rs. 2,163.82 Cr. as on March 31, 2025 fuelled by disbursements of Rs. 722.15 Cr. (provisional) during FY2026. KSFC’s funding profile is supported by the State Government’s moral obligation to provide on-going support for growth and development of the state and also in times of distress.
Acuité believes, support from GoK is critical to the rating and thus, the credit profile of Karnataka state is a key rating sensitivity.

Comfortable Capitalisation levels; improving Profitability
KSFC has received continuous support from Government of Karnataka, as seen through equity infusions over the years; However, during FY2025 and FY2026, there has been no equity infusion by Government of Karnataka (GoK). KSFC has still been able to maintain gearing at lower levels at 0.36 times (provisional) as on March 31, 2026. The corporation has still been able to maintain comfortable capitalization levels, as denoted by a CRAR of 59.00 percent (provisional) as on March 31, 2026 of which Tier 1 Capital is 55.72 percent. The corporation’s funding mix comprises of equity contribution from its shareholders, primarily GoK and bank borrowings. The bank borrowings stood at Rs. 539.20 Cr. (provisional) as on March 31, 2026. The ownership by the GoK enables KSFC to borrow at fine pricing from various banks and institutions. KSFC has been able to maintain gearing at lower levels at 0.36 times (provisional) as on March 31, 2026 as against 0.42 times as on March 31, 2025. Overall Profitability of the company improved in FY2026, where PAT stood at Rs. 127.47 Cr. (provisional) during FY2026 as compared to Rs. 110.51 Cr. during FY2025. This also led to improvement in ROAA which stood at 5.50 percent (provisional) in FY26 against 4.90 percent in FY25.
Acuité believes that the corporation will continue to benefit from strong financial and managerial support from the State Government on an on-going basis over the medium term.

Weakness

Moderate Asset Quality; albeit improving
The corporation’s GNPA improved to 6.01 percent (provisional) as on March 31, 2026, as compared to 7.72 percent as on March 31, 2025, however, they remain at high levels. The corresponding NNPA levels stood at 1.58 percent and 3.43 percent respectively. The provision coverage ratio of KSFC stood at ~75 percent (provisional) during FY26. The outstanding loans of restructured accounts as of March 31, 2026, stood at Rs. 185.89 Cr. (provisional), which constitutes ~8 percent of the loan portfolio outstanding during the same period. KSFC’s ability to avoid slippages remains a key monitorable.

Stagnant movement in AUM
KSFC’s AUM saw a low movement in AUM due to low disbursements during FY26. The loan portfolio increased to Rs. 2,316.33 Cr. (provisional) as on March 31, 2026, from Rs. 2,163.82 Cr. as on March 31, 2025. The corporation lends majority of its loans to the MSME Sector and disbursements had increased by ~8 percent to Rs. 722.15 Cr. (provisional) during FY2026 from Rs. 671.06 Cr. in FY2025.
Acuité believes that KSFC ability to grow a healthy loan portfolio while effectively containing asset quality stress will be a key rating sensitivity.

Assessment of Adequacy of Credit Enhancement under various scenarios including stress scenarios (applicable for ratings factoring specified support considerations with or without the “CE” suffix)

Acuite takes into consideration the benefit derived by KSFC from the 96.14% ownership of Government of Karnataka, directly.

Stress Case Scenario
While the rating has been derived on the standalone credit risk profile and cash flows of the company, Acuite believes given the 96.14% holding of Govt. of Karnataka ; in case of any stress case scenario, the required support would come from the state of Karnataka.

Rating Sensitivity

Potential triggers (individual or collective) for an upward rating action:

Improvement in the financial and credit profile of Government of Karnataka

Potential triggers (individual or collective) for a downward rating action:

Deterioration of financial and credit profile of Government of Karnataka indicated by high fiscal deficit
High leverage exceeding 5 times and low liquidity buffers

Liquidity Position

Adequate

As per the ALM statement submitted by the corporation as on March 31, 2026, no negative cumulative mismatch noticed within near to medium term buckets. KSFC has Rs. 14.55 Cr. (provisional) as cash and bank balance as on March 31, 2026 and unutilised bank lines of Rs. 65 Cr. The entity's liquidity is also supported by ownership and continuous support from Government of Karnataka, as seen through regular equity infusions over the years and comfortable leverage of 0.36 times (provisional) as on March 31, 2026.

Outlook: Stable

Other Factors affecting Rating

None

Key Financials - Standalone / Originator

Particulars	Unit	FY26 (Provisional)	FY25 (Actual)
Total Assets	Rs. Cr.	2339.77	2295.06
Total Income*	Rs. Cr.	252.86	247.23
PAT	Rs. Cr.	127.47	110.51
Net Worth	Rs. Cr.	1505.17	1377.71
Return on Average Assets (RoAA)	(%)	5.50	4.90
Return on Average Net Worth (RoNW)	(%)	9.05	8.57
Debt/Equity	Times	0.36	0.42
Gross NPA (Owned portfolio)	(%)	6.01	7.72
Net NPA (Owned portfolio)	(%)	1.58	3.13

*Total income equals to Net Interest Income plus other income.

Status of non-cooperation with previous CRA (if applicable):

Not applicable

Any other information

None

Applicable Criteria

• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm
• Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm
• Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm
• State Government Ratings : https://www.acuite.in/view-rating-criteria-26.htm

Note on complexity levels of the rated instrument

In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
25 Mar 2025	Term Loan	Long Term	59.22	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	62.23	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	139.28	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	78.43	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	57.45	ACUITE AA \| Stable (Reaffirmed)
	Proposed Long Term Bank Facility	Long Term	256.72	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	46.67	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	150.00	ACUITE AA \| Stable (Assigned)
	Proposed Long Term Bank Facility	Long Term	150.00	ACUITE AA \| Stable (Assigned)
25 Jun 2024	Term Loan	Long Term	106.94	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	75.00	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	150.00	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	16.78	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	89.15	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	84.85	ACUITE AA \| Stable (Reaffirmed)
	Proposed Long Term Bank Facility	Long Term	115.61	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	61.67	ACUITE AA \| Stable (Reaffirmed)
28 Mar 2023	Term Loan	Long Term	113.03	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	0.36	ACUITE AA \| Stable (Reaffirmed)
	Proposed Term Loan	Long Term	304.54	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	18.00	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	33.99	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	54.54	ACUITE AA \| Stable (Reaffirmed)
	Proposed Long Term Bank Facility	Long Term	90.54	ACUITE AA \| Stable (Reaffirmed)
	Term Loan	Long Term	85.00	ACUITE AA \| Stable (Reaffirmed)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Listing Status	Regulated By	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
Not Applicable	Not avl. / Not appl.	Proposed Long Term Bank Facility	Unlisted	RBI	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	292.96	Simple	ACUITE AA \| Stable \| Reaffirmed
Not Applicable	Not avl. / Not appl.	Proposed Long Term Bank Facility	Unlisted	RBI	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	150.00	Simple	ACUITE AA \| Stable \| Reaffirmed
Canara Bank	Not avl. / Not appl.	Term Loan	Unlisted	RBI	09 Feb 2026	Not avl. / Not appl.	31 Mar 2031	79.99	Simple	ACUITE AA \| Stable \| Reaffirmed
State Bank of India	Not avl. / Not appl.	Term Loan	Unlisted	RBI	23 Oct 2025	Not avl. / Not appl.	30 Nov 2032	91.74	Simple	ACUITE AA \| Stable \| Reaffirmed
H D F C Bank Limited	Not avl. / Not appl.	Term Loan	Unlisted	RBI	30 Apr 2022	Not avl. / Not appl.	30 Apr 2027	18.34	Simple	ACUITE AA \| Stable \| Reaffirmed
Canara Bank	Not avl. / Not appl.	Term Loan	Unlisted	RBI	03 Sep 2024	Not avl. / Not appl.	30 Sep 2029	107.50	Simple	ACUITE AA \| Stable \| Reaffirmed
State Bank of India	Not avl. / Not appl.	Term Loan	Unlisted	RBI	24 Mar 2020	Not avl. / Not appl.	31 Mar 2027	17.52	Simple	ACUITE AA \| Stable \| Reaffirmed
Canara Bank	Not avl. / Not appl.	Term Loan	Unlisted	RBI	30 Dec 2023	Not avl. / Not appl.	30 Sep 2029	40.80	Simple	ACUITE AA \| Stable \| Reaffirmed
State Bank of India	Not avl. / Not appl.	Term Loan	Unlisted	RBI	15 Mar 2024	Not avl. / Not appl.	31 Jul 2031	106.44	Simple	ACUITE AA \| Stable \| Reaffirmed
State Bank of India	Not avl. / Not appl.	Term Loan	Unlisted	RBI	12 Jul 2023	Not avl. / Not appl.	30 Jun 2030	56.97	Simple	ACUITE AA \| Stable \| Reaffirmed
State Bank of India	Not avl. / Not appl.	Term Loan	Unlisted	RBI	23 Mar 2021	Not avl. / Not appl.	30 Jun 2028	37.74	Simple	ACUITE AA \| Stable \| Reaffirmed

*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support)

Sr. No.	Company Name
1	Government of Karnataka
2	Karnataka State Financial Corporation

Contacts

Mohit Jain
Chief Analytical Officer - Rating Operations

Nivedita Gokul
Analyst - Rating Operations

Contact details exclusively for investors and lenders

Mob: +91 8591310146
Email ID: analyticalsupport@acuite.in

List of instruments and names of regulators of the instruments

As required by SEBI Circular (SEBI/HO/DDHS/DDHS-PoD-2/I/4685/2026) dated February 10, 2026, a list of activities or instruments falling under the purview of various Financial Sector Regulators (FSRs), along with the names of respective FSRs, is being disclosed below:
A. Rating Activity:

Sr. No.	Instrument / activity Name	Regulator of the instrument
1	Listed/Proposed to be listed Bonds/Debentures/Preference Shares (all securities)	SEBI
2	Unlisted/Proposed to be unlisted Bonds/Debentures/ Preference share (all securities)	MCA
3	Listed PTCs / Securitisation Notes (originated by entities regulated by RBI)¹	SEBI
4	Listed PTCs / Securitisation Notes (originated by entities not regulated by RBI)¹	SEBI
5	Unlisted PTCs / Securitisation Notes (originated by entities regulated by RBI)¹	RBI
6	Listed Commercial Paper and NCDs with original maturity less than 1 year	RBI
7	Unlisted Commercial Paper and NCDs with original maturity less than 1 year	RBI
8	Loan Facilities (Fund/Non-Fund Based) from Bank / NBFCs/ NHB/ FIs ²	RBI
9	External Commercial Borrowings and other similar borrowings	RBI
10	Certificates of Deposit	RBI
11	Fixed Deposits raised by NBFCs, Banks, HFCs, FIs	RBI
12	Fixed Deposits raised by corporates other than NBFCs, Banks, HFCs, FIs	MCA
13	Inter Corporate Deposits/Loans extended by Corporates	MCA
14	Borrowing programme ³	-
15	Issuer Ratings ⁴	-
16	Credit Ratings for Capital Protection Oriented Schemes (by Mutal Funds and AIFs)	SEBI
17	Credit quality ratings (CQRs) for Mutual Fund Schemes and Schemes of AIFs	SEBI
18	Listed Security Receipts	SEBI
19	Unlisted Security Receipts	RBI
20	Independent Credit Evaluation (ICE)	RBI
21	Expected Loss Ratings (For Loan Facilities [Fund/Non-Fund based] from Banks/NBFCs/NHB/FIs)	RBI
22	Expected Loss Ratings (Listed / Proposed to be listed Bonds / Debentures / Preference Shares (all securities))	SEBI
23	Expected Loss Ratings (Unlisted / Proposed to be unlisted Bonds/ Debentures / Preference Shares (all securities))	MCA
24	Unlisted PTCs / Securitisation Notes (originated by entities not regulated by RBI) ¹	Investor-side Regulator such as IRDAI, PFRDA ⁵

¹Includes securitisation transactions involving assignee payout, acquirer's payout.

² Includes bank facilities such as liquidity facility, second loss facility that are part of securitisation transactions.
³The rated instrument may involve issuance of different instruments such as debt securities (listed or otherwise), bank loans, commercial paper (listed or otherwise), etc. The regulator of the instrument may accordingly be SEBI, RBI or MCA and can only be determined upon issuance. In Press Release(s) subsequent to issuance(s), Acuite shall separately capture the rated quantum details along with names of respective regulators.
⁴ There is no instrument being rated and hence, Regulator of the Instrument is not applicable. The rating scale and definitions are being followed as stipulated in SEBI Master Circular for CRAs.
⁵ These ratings were assigned during regulatory regime prior to the introduction of SEBI CRA Circular dated Feb 10, 2026 and accordingly, investor side regulators have been included.

B. Other activities:

Sr. No.	Activity Name	Regulator of the activity
1	Monitoring Agency	SEBI
2	Research activities, incidental to rating, such as research for Economy, Industries and Companies ⁶	Not applicable

⁶ permitted by SEBI vide SEBI Master Circular for CRAs.

Disclosure on instruments / activities and names of regulators:

A list of products/activities or ratings of instruments falling under the purview of various financial sector regulators (FSRs) along with the names of respective FSRs has also been duly disclosed by Acuite on its website. A link to the same has been provided below for ready reference:

https://acuite.in/Activities-and-Regulators.html

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating.

Note: None of the Directors on the Board of Acuité Ratings & Research Limited are members of any rating committee and therefore do not participate in discussions regarding the rating of any entity.