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| 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| Total Withdrawn | 0.00 | 0.00 | - | - | - |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 |
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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 RatingThe 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 |
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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) |
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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: |
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| Potential triggers (individual or collective) for a downward rating action: |
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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 |
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Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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Status of non-cooperation with previous CRA (if applicable): |
| Not applicable |
Any other information |
| None |
Applicable Criteria |
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• 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 |
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| 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. |
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*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||
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