­Ownership and Support from Government of Kerala (GoK):
KFC is a State finance corporation established under the SFC Act, 1951. The board of KFC includes representation from Government of Kerala. The Board of Directors comprise 2 bureaucrats appointed by the Government of Kerala and the others representing SIDBI, LIC of India and State Bank of India (erstwhile State bank of Travancore). The Government of Kerala is the 99.33 percent stakeholder in the corporation and is expected to support the corporation given its systemic importance to the state. KFC’s capitalization levels remained adequate as denoted by a CRAR of 28.65 percent as on March 31, 2025 as against 25.52 percent as on March 31, 2024. The improvement in CRAR is attributed to equity infusion to the tune of Rs. 200 Crs. in March '25. By virtue of state government ownership and support, the corporation enjoys strong resource raising ability at lower cost of funds thereby maintaining comfortable liquidity buffers to meet its funding requirements. KFC’s funding profile is supported by the State Government’s moral obligation to support the capitalization levels both on an ongoing basis and in the event of distress. KFCs funding mix comprises equity contribution from its shareholders primarily GoK, Bonds and borrowings from banks. Of the overall outstanding borrowings of Rs 7808.45 Cr. as on March 31, 2025, Non-SLR Bonds comprise ~18 percent and remaining ~82 percent is bank borrowings including foreign currency loans. KFC is a Nodal Agency for several policy initiatives by the State Government of Kerala and is responsible to implement the states policy initiatives announced in the annual state budget.
The corporation in the past has operationalized various policy initiatives by GoK such as Kerala State Entrepreneur Development Mission and Interest Subvention for Innovative Projects. The corporation is presently promoting schemes such as Startup Support Scheme, Receivable Financing scheme to support various business while extending working capital loans and term loans as its own products. KFC reported loan portfolio of Rs. 8011.99 Cr. as on March 31, 2025 as against Rs. 7368.34 Cr. as on March 31, 2024. 
Acuité believes that the corporation will continue to benefit from strong financial and managerial support from the State Government on an ongoing basis over the medium term.

Maintenance of principal cash collateral, DSRA along with presence of Structured
Payment Mechanism for NCD:
The rating factors in the Structured Payment Mechanism (SPM) put in place by KFC to ensure timely availability of funds for servicing of debt obligations. The rating on the Rs. bonds and NCDs considers the presence of Structured Payment Mechanism wherein starting from the 1st day of each quarterly servicing cycle, remit on every working day an amount equivalent to 2.00% of the aggregate servicing requirement for such quarterly servicing cycle to the bond servicing account. The Debenture Trustee shall monitor the same on T-15 day (T is the due date) and any shortfall persisting on T-9th day shall be met through transfer of requisite funds from the DSRA. The SPM is also stipulates that KFC would be required to maintain in DSRA an amount equivalent to total servicing obligation (principal plus interest) for the next two quarters on a rolling basis. KFC would also be required to maintain a cash collateral for an amount equivalent to 10% of the outstanding amount of debentures. Both, the Cash Collateral and DSRA would be in the form of cash and cash equivalent, invested in permitted instruments and would remain charged in favour of the debenture trustee. In case of any erosion from the DSRA due to transfer of funds in bond servicing account, the same shall be required to be cured within 30 days (T+30). If not the same shall be made good by transferring necessary amount of funds / investment to the DSRA from cash collateral and the Debenture Trustee should immediately inform the issuer to replenish the cash collateral amount to the stipulated level within the next 30 days (T+60). The cash collateral, DSRA, investment as per structured payment mechanism, and funds in the escrow account till such time being utilized would be permitted to remain invested in Fixed deposits with Scheduled commercial banks with preferably A1+ rating or AA or higher rating, Central or State Government securities (G Sec/T- Bills /SDL) or AAA/AA paper rated by two SEBI/RBI approved rating agency. These investments will be pledged in favour of debenture trustee. The rating centrally assumes complete adherence to the SPM by the debenture trustee and KFC on an ongoing basis.

­Moderate profitability; albeit improving
The profitability in FY2025 stood at Rs. 98.16 Cr. (Rs 74.04 Cr for FY2024). The corporation reported Net Interest Margin of percent in 2.20 percent in FY2025 as against 2.21 percent in FY2024. The profitability continues to be supported by lower operating expenses to earning assets of 0.63 percent for FY2025 as against 0.70 percent in FY2024. The corporation’s return on average assets stands increased to 1.08 percent as on March 31, 2025 (0.92 percent for FY 2024).
Acuité believes, given the challenges the company’s ability to manage the additional slippages while maintaining the profitability will be key rating sensitivity.

Moderate asset quality and Concentration towards Kerala state PSUs.
KFC has moderate asset quality as the GNPA as on March 31, 2025 stood at 2.67% as compared to 2.88% as on March 31, 2024 with an on-time portfolio that has improved to 93.96 percent as on Mar 2025. Further the company also has restructured accounts amounting to Rs. 79.07 Cr. as on March 31, 2025 which reduced from Rs. 355.92 Cr. as on March 31, 2024. However, KFC has a high borrower concentration as the top twenty standard borrowers, amounted to ~Rs. 3567.83 Cr. as on Mar 31, 2025.
Moving forward KFC's ability to reduce the concentration of top borrowers and its ability to maintain NPA and restructured accounts will be key monitorables.