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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 700.00 | ACUITE AA | Stable | Reaffirmed | - |
| Total Outstanding | 700.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed a long-term rating of ‘ACUITE AA’ (read as ACUITE double A) on the Rs. 700.00 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, 2024 and the continued capital support extended to KSFC at regular intervals. During FY24, the state of Karnataka infused capital of Rs. 54.60 Cr. into the company resulting into comfortable capitalization levels of 60.15 percent as on March 31, 2024. As a result of regular capital infusion, KSFC has comfortable capital structure. KSFC has been able to maintain gearing at lower levels at 0.50 times as on March 31, 2024. The rating favourably factors adequate liquidity position of KSFC to meet its current obligations and moderate profitability. KSFC has Rs. 107.41 crore as cash and bank balance as on March 31, 2024. KSFC’s PAT improved to Rs. 87.14 Cr in FY2024 as compared to Rs. 84.01 Cr. in FY2023. These strengths are partially offset by modest asset quality parameters marked by GNPA and NNPA of 7.09 percent and 3.43 percent respectively and low momentum in AUM as a result of lower disbursals in FY24. Further, KSFCs restructured assets as per cent of portfolio stood at 16.95 percent as on March 31, 2024. 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, 2024, the corporation operates in 30 districts of Karnataka with a network of 32 branches. Dr. Reju M.T. IAS is the current Managing Director of KSFC. |
| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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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.
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| Key Rating Drivers |
| Strength |
| Ownership and Support from Government of Karnataka:
KSFC is a state finance corporation established under the SFC Act, 1951. Around 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, 2024. 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 4 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 stood at Rs. 2062.53 Cr. as on March 31, 2024 as against Rs. 2032.68 Cr. as on March 31, 2023 and Rs. 2100.15 Cr. as on March 31, 2022. 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 infusion in FY 2020 (Rs.100 Cr.), FY 2021 (Rs.100 Cr.) and another Rs. 54.60 Cr. in 2024. The corporation’s capitalization levels remained comfortable at 60.15 percent as on March 31, 2024 as compared to 55.95 percent in FY2023 and 47.32 percent in FY2022. The corporation’s funding mix comprises of equity contribution from its shareholders primarily GoK, Bonds and bank borrowings. Of the overall outstanding borrowings, Bonds comprise of ~Rs 250 Cr. and bank borrowings comprise of ~Rs 434.39 Cr. as on March 31, 2024. All of the above borrowings (except for a term loan facility) are guaranteed by GoK. 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 0.50 times in FY2024 as against 0.63 times in FY2023. Overall Profitability of the company was improved in FY2024, where PAT stood at Rs. 87.41 Cr as compared to Rs. 84.10 crore in FY2023. This also led to improvement in ROAA which stood at 3.87 percent in FY24 against 3.62 percent in FY23. 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
The corporation’s GNPA deteriorated to 7.09 percent as on March 31, 2024 as compared to 6.37 percent as on March 31, 2023, the corresponding NNPA levels stood at 3.43 percent and 3.51 percent respectively. The provision coverage ratio of KSFC stood at 54 percent during FY24. The outstanding loan of restructured accounts as of March 31, 2024 was Rs. 349.61 crore which constitutes ~16 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 lower disbursements during FY24, the AUM stood at Rs. 2062.53 Cr. in FY24 and Rs. 2032.68 Cr. in FY23. The corporation lends majority of its loans to the MSME Sector and disbursements had increased by ~37% to Rs. 613.04 Cr. as on March 31, 2024 from Rs. 445.81 crore in FY2023. Acuité believes that KSFC ability to grow a healthy loan portfolio while effectively containing asset quality stress will be a key rating sensitivity. |
| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
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As per the ALM statement submitted by the corporation as on Mar 31, 2024, no negative cumulative mismatch noticed within near to medium term buckets. KSFC has Rs. 107 Cr. as cash and bank balance as on March 31, 2024. Liquidity is also supported by continuous support from Government of Karnataka, as seen through regular equity infusion.
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| Outlook: Stable |
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Acuité believes that KSFC will maintain a ‘Stable’ outlook over the medium term mainly driven by the financial and managerial support from the GoK. The outlook may be revised to positive in case of a significant improvement in the asset quality. The outlook may be revised to negative in case of significant deterioration in asset quality and profitability metrics.
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| Other Factors affecting Rating |
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None
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| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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*Total income equals to Net Interest Income plus other income.
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| Status of non-cooperation with previous CRA (if applicable): |
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Not Applicable
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| Any other information |
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None
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| 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 • Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm • Public Finance - State Government Ratings: https://www.acuite.in/view-rating-criteria-26.htm |
| Note on complexity levels of the rated instrument |
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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 Acuité Ratings & Research Limited 4/6 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
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||
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