2013-14 - Kerala Financial Corporation (KFC), Profile ... 2013-14 Annu Al RepoRt Kerala Financial Corporation Kerala Financial Corporation (KFC) is one of the premier financial institutions

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Kerala Financial Corporation

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Contents

Message From Hon. Chief Minister 03| Performance Highlights 04|Message From Hon.

Finance Minister 05| Board Directors 06| Principal Officers 07| Notice to shareholders 8 |

Directors’ Report 9| Auditors’ Report 19 | Financial Statements 22| Notes forming part

of financial statements 24| Significant Accounting Policies and Notes to Accounts 30 |

Disclosure Requirements 38 | Cashflow Statement 40 | Summary of operations 41 |

Highlights of performance 42| Proxy form 49

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Kerala Financial Corporation (KFC) is one of the premier financial institutions in the

State and plays a key role in the social and economic development of Kerala. The

lead taken by KFC to support first generation entrepreneurs and start- up units is

truly commendable.

I hope that KFC will continue to keep up its track record in ensuring timely financial

assistance to entrepreneurs in sectors that contribute to the socio-economic

growth of the State.

Wishing all success.

OOMMEN CHANDY

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I am happy to note that KFC has registered a growth of 49.63% in loan sanction

and 58.58% in loan disbursement during the FY 2013-14. Corporation’s social

commitment and contribution towards economic development of the State is

remarkable. Corporation’s performance as the nodal agency of ‘Kerala State

Entrepreneur Development Mission’ is also praiseworthy.

I am sure that KFC will become even more vibrant in the coming years and become a

model for other State Financial Corporations. I wish its employees, customers and all

stakeholders all success and prosperity.

K.M.Mani

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Sri. Namgial(Chief General Manager, SIDBI)

(till 06.09.2013)

Sri. P. Joy Oommen(Chairman & Managing Director)

(President, COSIDICI)

Adv. K. Ponnachan Sri. Krishna Iyer ManiChief General Manager, SIDBI

Sri. Anadi Charan SahuDy. General Manager, SIDBI

Sri. S. Chandrasekharan(General Manager, SBT)

Sri. K.S. Sreenivas, IAS(Special Secretary Industries (IP)Dept.

Govt. of Kerala)

Sri. Rajesh Kumar Sinha, IAS(Secretary, (Finance Department)

Govt. of Kerala)

Smt. Indumathi Sridhar(Deputy General Manager, SIDBI)

(till 06.09.2013)

Smt. Premilla .V. Nair, FCAChartered Accountant

Smt. Lekshmi Kylas(Senior Divisional Manager, LIC of India)

Board of direCtors

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PrinciPal Officers General ManaGers

Premnath Ravindranath Asok Kumar. N A.G. DineshDePuty General ManaGers

R. Jayasankar Mushtaq Ahammed. M C. Janardhanan K.S. Rajeev P.B. Sreekumar Mohanan. K.K Ajith Kumar. K Adarsh. R

financial cOntrOller

Sabu Thomas

cOrPOrate secretary

Soya. K

assistant General ManaGers

K.G. Ajith Kumar Annamma. M Sreelatha Sukumar Venkitaraman. P.S Hiran Das. K.M Sivadasan. A.K Anil John Abraham Haridas. M.R Sreenivasa Sarma Mohanan Achari. C Francis. J Dolly. K.L Prasad. A.C Annamma. K.P Sunil. B. Janardhanan. K.V Georgekutty. T.G N. Hariharan P.K. Babu Muraleedharan. V.P Girish Chandran M. Manisankar Rajan Potayil

statutOry auDitOrs

Kumar & Biju Associates, Chartered Accountants, Thiruvananthapuram

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nOTiCE TO SHaRE HOLDERS

Notice is hereby given that the 61st Annual General Meeting of the shareholders of Kerala Financial Corporation will be held at

the Head Office of the Corporation, Vellayambalam, Thiruvananthapuram on Wednesday, 30th of July, 2014 at 11.00 A.M. to

transact the following business:

1. To consider and adopt the Balance Sheet as at 31st March, 2014 and the Profit & Loss account for the year ended 31st March,

2014 of the Corporation, the Report of the Board of Directors on the working of the Corporation for the Financial

Year 2013-2014 and the Auditor’s Report on the said Balance Sheet and Accounts.

2. To appoint Statutory Auditors of the Corporation for the Financial Year 2014-2015 under Section 37 (1) of the SFCs Act.

3. To declare dividend.

By Order of the Board

Premnath Ravindranath GENERAL MANAGER (F&M)

Place : Thiruvananthapuram,

Date : 02.07.2014.

KERaLa FinanCiaL CORPORaTiOn(Incorporated under the State Financial Corporations Act No. LxIII Of 1951

H.O: Vellayambalam, Thiruvananthapuram - 695 033.Phone: 0471-2737500 (30 lines) Fax: 2311750,2318541, 2313813, 2722090

Email: [email protected] Website: www.kfc.org

NOTES:

1. The Share Register of the Corporation shall remain closed and transfer of shares will be suspended from 10.07.2014

to 30.07.2014 (both days inclusive).

2. The form of proxy is enclosed.

3. Voting rights of the shareholders shall be determined in terms of the provisions under Section 4F of the State Financial

Corporations Act, 1951.

4. Any shareholder entitled to attend and vote at the meeting shall be entitled to appoint another person (whether a

shareholder or not but not being an officer or employee of the Corporation) as his proxy to attend and vote instead

of himself. No proxy shall be valid unless it is duly stamped and unless it, together with the power of attorney or

other authority (if any) under which it is signed, or a copy of that power or authority certified by a notary

public or a magistrate, is deposited at the Head Office of the Corporation not less than 48 hours before

the time fixed for the meeting.

5. A shareholder being a Company including Small Industries Bank, Public Sector Banks, Co-operative Banks,

Co-operative Societies and LIC may, by a resolution of its Directors, authorise any of its officials or any

other person (not being an officer or employee of the Corporation) to act as its representative at the meeting.

The copy of the resolution appointing him as a duly authorised representative certified to be true copy by

the Chairman of the meeting at which it was passed shall have been deposited at the Head Office of the

Corporation not less than 48 hours before the time fixed for the meeting.

6. The State Government may, by order in writing, authorise any of its officers, whether a Director of the Corporation or

not, to act as its representative at the meeting. The copy of the order shall be deposited at the Head Office of the

Corporation before the time fixed for the meeting.

7. The meeting shall be held, conducted, and the business thereat shall be transacted in adherence to the provisions

of the State Financial Corporations Act 1951 (As amended up to date) and in terms of the provisions of the General

Regulations of Kerala Financial Corporation.

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DiRECTORS’ REPORT

Board of Directors of the Kerala Financial Corporation (KFC) has great pleasure in presenting the 61st Annual

Report on the performance of the Corporation for the Financial Year ended March 31, 2014. The financial

statements for the year ended on that date are attached.

Performance of the CorporationThe Corporation is celebrating the diamond jubilee of its incorporation in 2013. For the Corporation it has

been a long and eventful journey, supporting 45000 enterprises in the MSME sector across Kerala during the

last 61 years and continuously improving the industrial activity and economic scenario of the State. When

compared to the previous years, Kerala Financial Corporation has achieved substantial growth in terms of

sanction, disbursement and recovery of financial assistance. An analysis of the operational performance of the

Corporation during the last three years is given below:

Financial Year 2013-14 2012-13 2011-12

Portfolio Size 1800.37 1401.43 1239.84

Sanctions 989.62 661.39 539.01

Disbursements 754.73 475.94 464.57

Recovery 565.13 540.22 467.17

Total Income 266.19 257.70 214.25

Total Expenditure 198.47 154.00 151.62

Operating Profit 67.73 103.70 62.63

Net Profit 41.34 68.49 45.65

Capital Adequacy Ratio % 21.57 24.61 20.51

Gross NPA % 3.45 3.51 3.60

Net NPA % 0.35 0.36 1.30

KFC is among the best performing public sector undertakings in Kerala. It would also rank No. 1 amongst all

State Financial Corporations in the country in terms of profitability and low level of NPA. The Non-performing

Assets are at the lowest level. The Gross NPA and Net NPA have come down to 3.45% and 0.35% respectively.

Corporation is charging competitive rates of interest on Term Loans and is facing stiff competition from

commercial banks and other financial institutions. To make the rates competitive Corporation has increased

the rebate extended for prompt repayment and reduced the interest rate to the customers. Though the net

profit has come down on account of this and due to the increase in the cost of borrowing, Corporation could

make significant improvement in its performance in all major operational areas, viz, Sanction, Disbursement

and Recovery. Corporation was also able to bring about higher efficiency in Funds Management and resource

mobilization under a robust Asset Liability Management (ALM) frame work. As a result, Corporation has

registered an impressive 28.47 percent increase in its overall loan portfolio, adding new clients, especially young

entrepreneurs. This healthy growth is attributed to the customer centric policies and inspired performance of

the staff.

Rs. In crores

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Operating Results: The chart below shows the net profit trend for the last ten years.

Sanctions:Corporation sanctioned financial assistance of Rs.989.62 Crores during the FY 2013-14 registering a growth of 49.63% when compared with the previous FY.

2013-14Segment

2012-13

no. amount no. amount

831 405.52 Micro 290 193.19

32 27.43 Small 19 31.21

1 20.00 Medium Nil Nil

420 536.67 Others 379 436.99

1284 989.62 Total 688 661.39

Rs. In crores

Rs. In crores

Rs. In crores

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DisbursementsAn amount of Rs.754.73 crores was disbursed during FY 2013-14, recording a growth of 58.58% over previous year. The growth in sanction and disbursement when compared to the previous financial year indicates the healthy contribution of the Corporation to the development of the industrial activity in the State.

RecoveryTotal recovery during the year was Rs.565.13 crores. Out of this, principal recovery was Rs.315.02 crores and interest recovery amounted to Rs.250.11 crores. Out of the total recovery, an amount of Rs.41.86 crores was by way of compromise settlement. On the recovery front, the total amount collected has gone up by 4.61%. while the total interest income has gone up by 16.38%. The high level of growth in these areas throw light on the effective functioning of the organization in terms of quality lending and highly efficient collection of current dues.

Rs. In crores

Rs. In crores

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asset Quality:Scientific & practical compromise settlement policies are in place for realization of amounts blocked in old and non-performing advances. These are also reflected in the fall in the level of non-performing assets to 0.35% in terms of Net NPA, and to around 3.45% at the Gross Level which is maintained only by a few financial/banking institutions with high standards. Apart from policies for Compromise Settlement, guidelines have been prepared for monitoring of loan accounts which help in avoiding slippage of loan accounts and thus to prevent quality of loan portfolio from deteriorating.

asset Classification & Provisioning:Break up of principal outstanding as on 31.03.2013 and 31.03.2014 as well as provision requirement thereon are given in the table below:

Category Principal Outstanding Provision

2013-14 2012-13 2013-14 2012-13

Standard 1738.24 1352.22 7.43 5.94

Substandard 62.13 49.21 55.91 44.29

Doubtful – I - - - -

Total 1800.37 1401.43 63.34 50.13

Capital adequacy Ratio:Capital to Risk - weighted Assets Ratio (CRAR) was at 21.57 % during the year under report, as against the minimum of 9% prescribed.

Dividend:During this year the corporation has proposed a dividend of 5% on paid up share capital, amounting to Rs. 10.60 crores.

Rs. In crores

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iSO Certification:The Quality Management Certificate was validated and changed over to new version IS/ISO 9001-2008 by Bureau of Indian Standards (BIS) after conducting surveillance/ renewal audit. The current license has been renewed for another 3 years by BIS till 21st June, 2016. At present, all offices of the Corporation continue to hold the Quality Management System Certificate.

Share Capital:The paid up share capital of the Corporation as on March 31st 2014 is at Rs.211.97 crores.

Refinance from SiDBi & LOC from Commercial BanksThe Corporation availed refinance of Rs.27.10 crores from SIDBI by way of Line of Credit during the FY 2013-14 against Rs. 59.00 crores availed in the previous financial year. Repayment during the year was Rs.126.02 crores. Payment towards interest and service charges to SIDBI was Rs. 26.36 crores. Aggregate of borrowing from SIDBI, outstanding at the year-end was Rs.238.79 crores. Corporation availed Rs. 275 crores LOC and enhanced Overdraft facilities from Rs.100 crore to Rs.200 crore during the FY 2013-14 from various commercial banks. Aggregate outstanding LOC at the year end was Rs.733.98crores.

Bonds:The Corporation issued Non SLR Bonds of Rs. 200 crores during the FY and balance outstanding as on 31.03.2014 was Rs. 400.00 crore .The bonds were issued with unconditional and irrevocable guarantee by the Government of Kerala @ 8.72% p.a payable half yearly. An amount of Rs. 164.99 lakhs was paid to the State Government as commission for guarantees extended for the Bonds.

Rs. In crores

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Human ResourcesFifteen employees retired from the service on attaining superannuation. Total staff strength as on 31.03.2014 was 235. Corporation recognizes that key resources for achieving high levels of excellence are its people who need to be motivated and developed. During FY 2013-14, training was imparted to 176 employees through different training programmes and promotion given to 37 officers creating immense goodwill and motivation among employees.

Corporate Governance:The Corporation has been ensuring fairness, responsibility, accountability and transparency in all its dealings. Loan Policy, Compromise Settlement Policy, Valuation Policy etc. were all reviewed and updated. ISO procedures are scrupulously complied with. The Corporation has designated State Public information Officers, Assistant State Public Information Officers and Appellate Officers for the Head Office as well as the Branch Offices for providing reply under RTI. Prompt action is taken for replying the petitions received under RTI. 55 applications were received and no applications were pending as on 31.03.2014.

Board of Directors:As on March 31, 2014 the Board consisted of the following directors as per the table shown below.

name of the director Designation Tenure

Shri. P. Joy OommenChairman & MDPresident, COSIDICI

23.02.13 -

Shri. K.S.Srinivas IAS Special Secretary (Industries &IP) 09.09.10 -

Shri. R K Sinha, IAS Secretary (Finance &Expenditure) 12.12.12 -

Smt. Premilla V Nair Chartered Accountant 26.09.11 -

Shri. Namgial Chief General Manager, SIDBI, Mumbai 21.08.12 – 06.09.13

Shri. Krishna Iyer Mani Chief General Manager, SIDBI, Mumbai 06.09.2013

Smt. Indumathi Sreedhar Dy. General Manager, SIDBI, Ernakulam 18.06.10 – 06.09.13

Shri Anadi Charan Sahu Dy. General Manager, SIDBI, Ernakulam 06.09.2013 -

Shri. S. Chandrasekharan General Manager (Treasury) (SBT) 21.08.12-

Smt. Lekshmy Kylas Senior Divisional Manager, LIC 07.06.11 -

Shri. Ponnachan Advocate 04.06.2013 -

The Board of the Corporation met 4 times and Executive Committee met twice during the FY.

Participative Management:The Corporation believes in participative management. The rich experience of its officers can be fully utilized by participating them in the decision making process. Realising this, wide delegation has been given to different level of officers across the state at branch and zonal level. At head office also, the committee concept is used and the decision making has been very transparent. However in order to ensure objectivity and fairness, checks and balances through various internal control and audit procedure have been introduced.

annual General Meeting:Last Annual General Meeting was held on 19.07.2013. M/s. Kumar &Biju Associates, Chartered Accountants, were appointed as Statutory Auditors of the Corporation for the financial year 2013-14. The financial statements for the year 2012-13 were approved and a dividend @ 8% was also declared in the Annual General Meeting.

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Directors’ Responsibility Statement:The Board of directors confirm that in the preparation of Profit and Loss Account for the year ended March 31, 2014 and the Balance Sheet as at that date-• the applicable accounting standards have been followed and proper explanation has been furnished to the

extent of departures from those standards. • the applicable guidelines prescribed for SFCs have been followed and there has been no material departure.

Accrual method of accounting is followed for standard assets and cash basis for non-performing assets from 2005-06;

• the Directors selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Corporation at the end of the financial year and of profit / loss of the Corporation for the year under review;

• the Directors have taken proper and sufficient care for the maintenance of adequate accounting records for safeguarding the assets of the Corporation and for preventing and detecting fraud and other irregularities.

• the accounts for the year ended March 31, 2014 have been prepared on a going concern basis.

auditingThe accounts of the Corporation are audited on a quarterly basis by the Statutory Auditors. Concurrent Audit of branch operations is also now in place through reputed Chartered Accountants on a monthly basis. Further compromise settlement sanction of above Rs.25 lakhs are also carried out as a prudent control mechanism and risk mitigation measure. A pre-disbursement audit for disbursements above Rs. 100 lakhs has also been introduced. The internal control and auditing procedure in KFC are at par with prescribed industry standards. The Comptroller & Auditor General of India conducted audit of the accounts of the Corporation up to the F.Y 2012-13.

Shareholder information:The composition of shareholders as on March 31, 2014 is furnished below:

Shareholders Rs. in lakhs % of Shareholding

Government of Kerala 20573.81 97.06

SIDBI 613.33 2.89

LIC 7.10 0.03

SBT 2.10 0.01

Others 0.96 0.01

Total 21197.30 100.00

new initiatives and Future Plans:KSEDM (Kerala State Entrepreneur Development Mission)Corporation earned another feather in its cap with its – implementation of the Kerala Government scheme

for the entrepreneurs the Kerala State Entrepreneur Development Mission (KSEDM). The efforts of KFC as the

nodal agency is bringing about a silent revolution in a state previously not known for its entrepreneurship

efforts. The scheme first of its kind in the country, aims to provide start up opportunities for units in the

manufacturing and service sector by imparting training, field experience, handholding activities and interest

free financial assistance upto Rs.20.00 lakhs. As on March 31, 2014 , 454 units were established and another

607 units are in the various stages of development. The scheme has been very popular especially with young

entrepreneurs, from incubation centre like Technopark TBI, Thiruvananthapuram Start up village, Kochi and

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NIT incubation centre, Kozhikode. The large numbers of startups thus incubated by KFC , will bring a multiplier

effect on the economy of Kerala. The scheme will enable improved quality of local product and services, lower

cost to customers with more convenience in purchasing it locally, additional contribution to sales tax, service

tax and state exchequer in general and make the youth self-reliant, confident and attain dignity in their living

standards.

iT initiatives:Corporation aims at prioritizing itself as a technologically advanced customer centric institution. Corporation

has made substantial progress in complementing the core financial solution (CFS) developed by TCS. The

software is online now and for effective utilization of the software, Corporation plans to acquire state of the

art computers and other accessories for its branch offices. Initiatives were also done for empowering the

employees with proper training to give better customer satisfaction. The state of art Data center, centralised

connectivity and Wifi enabled H.O and Branches help to speed up the business process. A new application

has also been developed to handle the disbursement fund requests from branch and allocation of the same

from Head Office on real time basis which reduces the time lag between request of funds and disbursement of

loans. The website has been updated with dynamic contents and provide information on all the activities and

services of KFC including details of its loan schemes and KSEDM. The site also contains the contact details of

all the branch locations with the support of maps. The site hits have crossed 19 lakhs so far. KFC is also part of

the m-governance implemented by Govt. of Kerala through IT mission. KFC customers can send SMS to 53725

to know the information on branches, loans etc. Automated SMS are sent to customers on loan schemes, account details etc.

new Loan SchemesContractor Loan SchemeThe Contractor Loan scheme has been revised to make it as Revolving loan renewable every year with recoup-

ment facility.

Receivable Finance Scheme The Receivable Finance Scheme is intended to discount the bills of MSME enterprises who supply materials to

Public Sector Undertakings/Government bodies.

Micro ManufacturingThe Corporation proposes to finance distributed micro-manufacturing units by partnering with innovative

manufacturers or NGOs, who will provide the manufacturing capability, technology and consultancy.

innovative Scheme for Cinema/Serial ProductionCorporation has launched an innovative scheme for producing feature films and TV serials with maximum

financial assistance of Rs. 2 crores with a repayment period of 18 months for reputed/ experienced producers.

Royalties like TV rights, CD rights, Overseas rights etc which have been firmly tied up are considered as part

of collateral.

Scheme for Theatres & MultiplexesThis scheme is providing assistance for modifying existing cinema theatres, construction of new multiplexes

and for introducing new technology like digital technology and providing quality service to Cinema goers etc.

Future Plans:The Corporation has been contemplating to achieve a portfolio size of over Rs.2500 crore by 2015. During

the FY 2014-15 corporation plans to sanction Rs.1050 Crores and to disburse around Rs. 880 crore to

manufacturing sector, hospitality, IT and entertainment sectors. Special thrust will be given to SC/ST, women

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and young entrepreneurs, renewable energy projects while exposure to CRE sector will be reduced. Special loan products for restaurants, Bakery etc under CGTMSE scheme will be introduced. Corporation will also work along with clusters. The other proposed initiatives are:

a) non SLR Bond issue The corporation’s proposes to raise Non SLR Bonds to the tune of Rs.400 crore from the market during

financial year 2014-15 depending on the market conditions and requirement of funds.

b) interest subvention scheme to manufacturing sector KFC has launched an innovative interest subvention scheme to manufacturing sector to give a boost to

the industrial environment of the state. This scheme was announced in Kerala Budget for FY 2013-14 by

Hon. Finance Minister of Kerala, Sri. K.M. Mani. New ventures with technologies developed by Central and

State Research and Development Organisations as well as Agencies like Coconut Development Board, Spice

Board, Rubber Board, Coir Board, etc. will benefit from this scheme. Technocrats and other entrepreneurs

who are desirous of launching such industrial units will be given technological and financial support.

Enterprises in areas such as food processing, information technology, apparels, handicrafts, presentation

articles, agro processing, fish processing, packaging, etc. will get special attention. Enterprises requiring

loan amount of less than 1 crore will get interest subvention of 3% and others 2% from the normal rate

of interest. KFC will extend all support to prospective entrepreneurs starting with identification of new

opportunities like project report preparation, facilitating clearances from other governmental agencies and

financial support by way of soft loans.

c) accepting of public deposits RBI has granted in principle approval to the Corporation for raising public deposits subject to obtaining

minimum investment grade rating from a Credit Rating Agency approved by SEBI and RBI. Corporation

intends to raise public deposits after completing the necessary formalities and obtaining final approval

from RBI during second half of the FY 2014-15.

d) Venture Capital Fund Corporation has taken a decision to launch a venture capital fund called KFC Innovation Fund (KIF) for

entrepreneurs and is seeking the support of public as well as private sector partners for its effective

implementation.

Beginning of a new era for KFC:Our efforts to update and streamline the procedures are a continuing process. The corporation has taken

steps to continually revise the policies and procedures as per the changing requirements. The internal control

systems have been strengthened. More flexible and positive approach towards timely and adequate support

to the industrial sector is being attempted. To achieve this, Corporation intends to leverage technology for

augmenting the business growth and focus towards customer satisfaction and bring about attitudinal changes

in its dealings with the customers. The Corporation has clearly emerged as the first stop for the funding needs

of Technology start up as well as other ventures having new or innovative technologies.

acknowledgementsThe Directors wish to place on record their appreciation to the Government of Kerala, Small Industries

Development Bank of India, Reserve Bank of India, COSIDICI, other SFCs, Federal Bank, Indian Bank, South

Indian Bank, Canara Bank, State Bank of Travancore, State Bank of India, HDFC Bank, Yes Bank, New India

Assurance Company Ltd., Brickwork Ratings P Ltd, GDA Trusteeship Ltd, IDBI Trusteeeship Services P Ltd,

Karvy Computershare P Ltd., Cameo Corporate Services P Ltd, NSDL, CDSL, Bombay Stock Exchange, Tata

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Consultancy Services, Kerala State IT Mission, Department of Income Tax, DIC, KSIDC, CAG, Concurrent

Auditors, Statutory auditors, consultants ,customers and all other stake holders for their continued support,

guidance and assistance. The Board appreciates the entrepreneurs and the business community of the State

for reposing confidence in the Corporation.

The Board would like to place on record its appreciation and gratitude to all the members of the Board of

Directors existing as well as retired, who have ably guided the management of the Corporation during the

period. The Board also places on record its appreciation for the intensive efforts put in by all the employees of

the Corporation.

For and on behalf of the Board

P. Joy Oommen Chairman & Managing Director.

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Independent Auditor’s Report

To,

The MembersKerala Financial Corporation

Report on the Financial Statements

We have audited the accompanying financial statements of Kerala Financial Corporation (‘the Corporation’) which comprise the Balance Sheet as at 31st March, 2014, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Corporation in accordance with the provisions contained in the State Financial Corporation Act, 1951(“the Act”). This responsibility includes the design, implementation and maintenance of internal controls relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Corporation’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Basis for Disclaimer of Opinion

(a) Valuation of Gratuity and Leave Encashment liability is not as per the requirement of AS-15 “Employee Benefits”. We are unable to quantify its effect on the financial statements since the Actuary valuation for the liability is not done by the Corporation.

(b) The Corporation has not recognized Deferred Tax Liability on Special Reserve created as per Section 36(1) (viii) of the Income Tax Act, 1961 which is required by AS-22 “Accounting for Taxes on income.” We are unable to quantify its effect on the financial statements since the required details are not made available for our verification.

(c) The Corporation is not complying with AS-19 “Accounting for Leases” for the long term operating lease undertaken by it. We are unable to quantify its effect on the financial statements since the required details are not provided for our verification.

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(d) We are unable to verify the Corporation’s investment amounting to Rs.109.38Lakhs as on 31.03.2014 since the ownership documents are not available with the corporation. A provision for diminution in the value of investment amounting to Rs.8.38Lakhs has been provided.

Basis for Qualified Opinion

(a) The Corporation has not recognized Deferred Tax Asset on provision for doubtful debts required by AS 22 –“Accounting for taxes on income” due to which the current year profit is understated by Rs.445.51Lakhs (Previous Year-Rs.527.76Lakhs) and the current year outstanding deferred tax assets for the same as on 31.03.2014 is understated by Rs.2152.94Lakhs(Previous Year-Rs.1630.07Lakhs).

(b) The Corporation is not complying with Guidance note on “Accounting for Credit available in respect of Minimum Alternative Tax under the Income Tax Act,1961” issued by the Institute of Chartered Accountants of India due to which the current year profit is overstated by Rs.454.55Lakhs(Previous Year- Rs.766.51Lakhs) and assets understated by Rs.529.63Lakhs (Previous Year-Rs.984.19Lakhs)

(c) Attention to point No.1.4 of Note-20 regarding Cash flow statement. The Corporation is not following the Indirect Method prescribed in AS 3 “Cash Flow Statement” as stated in its policies. Further, the Corporation has not complied with AS 3 for classification of cash inflow and outflow. This leads to overstating the current year outflow of cash from the operating activities by Rs.2,575.57 Lakhs, overstating the cash inflow from the investing activities by Rs.317.26 Lakhs and overstating the cash inflow from the financing activities by Rs.2,258.31 Lakhs.

(d) Attention to the point No.2.11 of Note-20 regarding asset acquired in satisfaction of claim, the Corporation has recognized the NPA asset without realizing the amount in cash due to which “Other Non Current Assets” are overstated by Rs.400.34 Lakhs.

Disclaimer of OpinionIn our opinion, except for the effect on the financial statements of the matter described in the basis for disclaimer of opinion and qualified opinion paragraph, the financial statements have been properly prepared, in all material respects, in accordance with the Act and give a true and fair view in conformity with the accounting principles generally accepted in India, and according to the best of our information and explanations given to us:

i. in the case of the Balance Sheet, of the state of affairs of the Corporation as at 31st March, 2014; ii. in the case of the Statement of Profit and Loss, of the profit for the year ended on that date; andiii. in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Emphasis of Matter Paragraph

(a) Without modifying our opinion we draw your attention to point No.2.19 of Note No-20 regarding the Provisions for Income Tax which is computed on the profit arrived under cash basis. The Corporation is maintaining books of accounts under mercantile system whereas for the Income Tax purpose it is following cash basis.

(b) Without modifying our opinion we draw your attention on the matter that the Corporation is channelizing the gratuity amount received from LIC to the Corporation’s bank account and attaching the amount against the payables due from the employees. This treatment is against the provisions of the payment of Gratuity Act, 1972.

Report on Other Legal and Regulatory RequirementsWe Report that:

i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit and have found them to be satisfactory, except to the point (b), (c) and (d) mentioned under “Basis for disclaimer of Opinion” paragraph.

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ii. The transactions of the Corporation that have come to our notice have been within the powers of the Corporation.

iii. The returns received from the branches of the corporation have been found adequate for the purposes of our audit.

iv. The Operations of the Corporation have been conducted in accordance with the Provisions of the SFC Act, 1951.

v. The income recognition, asset classification and provisioning have been done as per the guidelines issued by the RBI/ SIDBI from time to time.

vi. The investment of surplus fund is made in accordance with the prudential norms laid down by the Board of Directors.

Place:ThiruvananthapuramDate:02.07.2014

For KUMAR & BIJU ASSOCIATESChartered Accountants

FRN: 006113S

J SREEKUMAR(Senior Partner)

Membership No.200882

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Balance Sheet as at 31 March, 2014

For and on behalf of the Board of Directors

` in Lacs

Particulars note no. as at 31March, 2014

as at 31 March, 2013

a EQUiTY anD LiaBiLiTiES

1 Shareholders’ funds

(a) Share capital 1 21,197.30 21,197.30

(b) Reserves and surplus 2 19,083.35 16,189.57

(c) Money received against share capital 1,203.13 989.13

2 Non-current liabilities

(a) Long-term borrowings 3 1,17,808.97 89,809.75

(b) Deferred tax liabilities (net) 405.75 301.15

(c) Long-term provisions 4 5,591.37 4,429.20

3 Current liabilities

(a) Short-term borrowings 5 19,468.00 9,753.64

(b) Other current liabilities 6 3,621.87 3,335.81

(d) Short-term provisions 7 5,989.02 5,248.49

TOTaL 1,94,368.76 1,51,254.04

B aSSETS

1 Non-current assets

(a) Tangible Assets 8 321.16 336.12

(b) Non-current investments 9 101.29 101.00

(c) Other non-current assets 10 1,930.13 1,458.16

2 Loans and Advances 11 1,80,037.32 1,40,142.96

3 Current assets

(a) Current investments 12 1,000.00 2,000.00

(b) Cash and cash equivalents 13 1,577.61 1,729.13

(c) Other current assets 14 9,401.25 5,486.67

4Significant Accounting policies and Notes to Accounts

20

TOTaL 1,94,368.76 1,51,254.04

Premilla V nair Director

Soya K Asst. General Manager

P.Joy Oommen Chairman & Managing Director

J. SreekumarSenior Partner, M No: 200882

Thiruvananthapuram02.07.2014

Premnath RavindranathGeneral Manager

As per our report of even dateFor Kumar & Biju Associates

Chartered AccountantsFirm Reg No: 006113S

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Statement of Profit and Loss for the Year ended 31st March 2014 ` in Lacs


Particulars note no.

For the year ended 31 March, 2014

For the year ended 31 March, 2013

a COnTinUinG OPERaTiOnS1 Revenue from operations 15 26,312.25 25,293.972 Other income 16 307.15 475.993 Total revenue 26,619.40 25,769.964 Operating Expenses

(a) Interest expenses 17 12,714.31 10,021.68(b) Employee benefits expense 18 2,354.78 2,317.32(c) Administrative Expenses 19 574.44 437.71(d) Depreciation and amortisation expense 64.58 57.02(e) Bad debts written off 4,138.60 2,566.41Total expenses 19,846.71 15,400.14

5 Operating Profit before exceptional and extraordinary items and tax 6,772.69 10,369.82

6 Add: Prior Period Income 247.95 98.737 Operating Profit After exceptional and extraordinary items and tax 7,020.64 10,468.558 Less: Provision for Bad and Doubtful debts 1,310.71 1,626.399 Profit before tax 5,709.93 8,842.1610 Tax expense:

Less: Current tax expense - (a) Provision for Income Tax 1,471.56 2,060.81 (b)Provision for Deferred Tax 104.61 -67.68

B Discontinuing operations 0.00 0.0011 Profit for the year 4,133.76 6,849.0312 Earnings per share (Equity shares of Rs 100/- each):

(a) Basic 19.50 32.31(b) Diluted 18.63 30.87

C Profit and loss appropriationBalance in Profit & Loss A/C B/f 7,657.62 4,930.14Net Profit for the year 4,133.76 6,849.03Total profit available for appropriation 11,791.38 11,779.17Less:Appropriations Proposed Dividend 1,059.86 1,695.78 Provision for Dividend tax 180.12 275.23 Transfer to Reserve u/s 36 (1) (viii) 1,354.54 2,073.96Balance Profit after appropriations 9,196.86 7,734.20Less: Prior Period Adjustments - 76.58Balance Profit carried to Balance sheet 9,196.86 7,657.62









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notes Forming Part of Balance Sheet as at 31.03.2014

` in Lacs

as at 31.03.2014 as at 31.03.2013

nOTE : 1

SHaRE CaPiTaL

AUTHORISED CAPITAL

3,50,00,000 shares of Rs.100 each 35,000.00 35,000.00

Issued, Subscribed and Fully Paid up Capital

Ordinary Shares

20757553 shares of Rs.100/- each 20,757.55 20,757.55

Special Shares

4,39,750 shares of Rs.100/- each as per last B/S 439.75 439.75

TOTaL 21,197.30 21,197.30

nOTE : 2

RESERVES anD SURPLUS

(a) Spl. Reserve u/s 36(1)(viii) of IT Act, 1961

As per last Balance Sheet 8,281.95 6,207.99

Added during the year 1,354.54 2,073.96

Total of (a) 9,636.49 8,281.95

(b) Spl. Reserve u/s 35(A) of SFCs Act, 1951 250.00 250.00

(c) Profit & Loss Account 9,196.86 7,657.62

TOTaL {(a)+(b)+(c)} 19,083.35 16,189.57

nOTE : 3

LOnG TERM BORROWinGS

SECURED ( Hypothecation of receivables)

Borrowings from SIDBI 23,879.47 33,771.49

LoC from Federal Bank 6,250.00 8,125.00

LoC from South Indian Bank 3,265.00 5,725.76

LoC from Indian Bank 14,687.50 7,187.50

LoC from State Bank of Travancore 9,227.00 5,000.00

LoC from Canara Bank 20,500.00 10,000.00

UNSECURED

Non-SLR Bond (Guaranteed by Government of Kerala) 40,000.00 20,000.00

TOTaL 1,17,808.97 89,809.75

nOTE:4

LOnG TERM PROViSiOnS

(a) Provision for Bad and Doubtful debts


Add: Provision made during the year 1,162.17 1,526.83

Less: Provision Written back 0.00 0.00

Total of (a) 5,591.37 4,429.20

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nOTE : 5

SHORT TERM BORROWinGS

SECURED ( Hypothecation of receivables)

OD from South Indian Bank 10,045.82 4,986.83

OD from Federal Bank 9,422.18 4,766.81

TOTaL 19,468.00 9,753.64

nOTE : 6

OTHER CURREnT LiaBiLiTiES

State Subsidy 112.90 8.91

Margin Money 3.63 2.64

KSSEDM Advance from Govt. of Kerala 849.97 981.14

Interest subsidy 0.15 0.15

Coconut Devp. Board Subsidy 14.06 5.16

Earnest Money Deposit 13.09 12.84

Self Employment Venture fund 26.48 26.48

Suspense Account 11.04 43.48

Tax Deducted at Source 0.00 0.77

Other Salary Deductions 0.00 0.20

Other Sundry Deposits 17.30 27.94

Gratuity Payable 0.00 0.24

Service tax 0.00 0.05

Outstanding Expenses 99.55 516.14

Accrued Interest on Refinance from SIDBI 198.98 257.89

Accrued Interest on SLR Bonds & Non SLR Bonds 1,064.03 514.55

Accrued Interest on LOC from banks 376.21 257.42

Audit Fee Payable 1.35 1.23

Concurrent Audit Fee payable 1.31 2.29

Contingent Provision against Standard. Assets 742.67 594.13

Staff Dues Retained 80.54 80.54

Leave Encashment Payable 7.72 1.11

Unclaimed Dividend 0.09 0.06

CGTMSE Fees Collection 0.80 0.45

TOTaL 3,621.87 3,335.81

nOTE : 7

SHORT TERM PROViSiOnS

(a) Provision for Taxation:


Less: Adjd against the Advance IT during the year 0.00 0.00

Add: Provision made during the year 1,471.56 2,060.81

Total of (a) 4,749.04 3,277.48

(b) Proposed Dividend for the year 1,059.86 1,695.78

(c) Provision for Dividend Tax 180.12 275.23

TOTaL 5,989.02 5,248.49

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nO

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nOTE : 9

nOn CURREnT inVESTMEnTS

Keltron Counters Ltd. 1.47 1.47

Kerala Spinners Ltd. 2.00 2.00

Vanjinad Leathers Ltd. 4.91 4.91

KITCO 0.29 0.29

India SME Asset Reconstrution Co. 35.00 35.00

Kerala Venture Capital Fund 66.00 66.00

Sub Total 109.67 109.67

Less : Provision for diminution in value of investments 8.38 8.67

TOTaL 101.29 101.00

nOTE : 10

OTHER nOn CURREnT aSSETS

Property Acquired in Satisfaction of Claims 400.34 400.34

House Loans to Employees 683.77 386.52

Conveyance Loan to Employees 124.28 70.47

Computer Loan to Employees 0.43 1.40

Other Staff Loan 0.15 0.15

Advance to Employees 17.79 11.09

Deposit with P&T 0.09 0.09

Other Deposits 13.35 13.30

Deposit with KSEB 14.46 7.33

Deposit against Staff Dues Retained 80.54 80.54

Interest Accrued on Staff Loans 446.47 426.03

Other Advances 26.09 26.76

Advance for Fixed Assets 122.37 34.14

TOTaL 1,930.13 1,458.16

nOTE : 11

LOanS & aDVanCES

Loans and Advances 1,80,037.32 1,40,142.96

TOTaL 1,80,037.32 1,40,142.96

nOTE : 12

CURREnT inVESTMEnTS

Short Term Deposits with Banks 1,000.00 2,000.00

TOTaL 1,000.00 2,000.00

nOTE : 13

CaSH anD CaSH EQUiVaLEnTS

Cash in hand 26.39 181.09

Banks Accounts 1,551.22 1,548.04

TOTaL 1,577.61 1,729.13

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nOTE : 14

OTHER CURREnT aSSETS

Advance Income Tax 6,667.49 3,224.39

Income Tax Paid 31.45 0.00

Income Tax Deducted at source 79.85 64.24

Stock of Stationery 0.00 0.00

Library 0.00 0.00

Interest Accrued on Loans & Advances 2,534.13 2,186.02

Interest Accrued on STD with Banks 80.40 2.97

Prepaid Expenses 7.93 9.05

TOTaL 9,401.25 5,486.67

nOTE : 15

REVEnUE FROM OPERaTiOnS

Interest Received On Loans & Advances 21,525.79 18,495.71

Interest on Staff Loans 80.04 35.90

Application Fees 0.12 0.79

Loan Processing Fees 507.18 302.67

Recovery from written off loans 4,185.65 6,429.20

Premium on pre-closure 13.47 29.70

TOTaL 26,312.25 25,293.97

nOTE : 16

OTHER inCOME

Interest on Bank Deposits 216.34 170.11

Dividend From Shares 2.18 0.07

Miscellaneous Income 2.49 10.88

Other Income 1.41 0.29

Rent Received 59.67 72.81

Income from Insurance Agency 4.85 4.50

RTI Application Fee Received 0.04 0.02

Income from Mutual Fund 16.60 207.43

Consultancy Service Division Receipts 0.01 0.93

Profit on sale of Fixed Assets 3.56 8.95

TOTaL 307.15 475.99

nOTE : 17

inTEREST anD FUnD EXPEnSES

Interest on Bonds 3,419.48 2,111.34

Interest on Coconut Dev Board Subsidy 0.66 0.49

Interest on Refinance from SIDBI 2,636.23 3,829.66

Interest on Line Of Credit from Banks 4,441.17 2,759.62

Guarantee Commission 164.99 184.39

Bond Issue Expenses 205.03 20.14

LOC Administrative Expenses 0.21 36.36

Interest rebate on Loans 1,846.54 1,079.68

TOTaL 12,714.31 10,021.68

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nOTE : 18

EMPLOYEE BEnEFiTS anD EXPEnSES

Pay & Allowances 1,981.60 2,101.26

Group Gratuity Insurance 15.67 5.00

Contribution to Employees' P.F 243.85 164.97

Group E/L Encashment Insurance 15.00 1.00

Other Staff Expenses 98.66 45.09

TOTaL 2,354.78 2,317.32

nOTE : 19

aDMiniSTRaTiVE EXPEnSES

Rent, Rates, Taxes & Insurance 86.94 96.18

Postage, courier and Telephone 26.06 23.96

Printing & Stationery 18.79 18.53

Vehicle Running & Maintenance 25.93 33.12

Repairs & Maintenance of Buildings & Equipments 52.52 21.20

Revenue Recovery expenses 91.94 84.10

Bank Charges and Commission 0.36 0.20

Audit Fees 1.35 1.04

Consultancy Charges 5.42 6.04

Legal Expenses 6.23 2.83

Books & Periodicals 2.43 2.27

Other Expenses 181.67 71.61

Travelling Expenses 22.22 17.01

Board / E.C. Meeting Expenses 1.09 1.70

Concurrent Audit Fee 17.97 16.44

Conference and Seminar Expenses 9.71 8.07

Advertisement and publicity 19.38 11.65

Business Development Expenses 4.43 21.76

TOTaL 574.44 437.71










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nOTE: 20

SiGniFiCanT aCCOUnTinG POLiCiES anD nOTES TO aCCOUnTS

Corporate information The Kerala Financial Corporation is a State Financial Corporation having its area of operations in the state of Kerala and incorporated under the provisions of the State Financial Corporation Act, 1951. It was established as the Travancore Cochin Financial Corporation on 01.12.1953. Consequent to the reorganization of states on linguistic basis in November 1956, Kerala State was formed and the Travancore Cochin Financial Corporation was renamed as Kerala Financial Corporation. The Corporation is engaged in extending financial assistance to Micro, Small and Medium Enterprises in manufacturing and service sector in the state.

Basis of Preparation The Financial Statements of the Corporation have been prepared in accordance with Generally Accepted Accounting Principles in India (Indian GAAP). The Corporation has prepared these Financial Statements to comply in all material respects, with the Guide lines issued by RBI / SIDBI, Accounting Standards notified and relevant provisions of the Companies Act, 1956. The Financial Statements have been prepared on an accrual basis unless otherwise specified or disclosed in the Financial Statements, and under the historical cost convention.The accounting policies adopted in the preparation of financial statements are consistent with those of previous year except for the change in accounting policy, if any explained below.

1. SiGniFiCanT aCCOUnTinG POLiCiES 1.1. Change in accounting Policy There is no change in the accounting policy.1.2. Uses of Estimates The preparation of the Financial Statements, in conformity with Indian GAAP requires Management to make Judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosures relating to contingent assets and liabilities at the end of the reporting period. Although these estimates are based on the management’s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in material or immaterial adjustments to the carrying amounts of assets or liabilities in future periods.

1.3. Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured.

Income is recognised on accrual basis on performing assets and on realisation basis in respect of non-performing assets as per the prudential norms on income recognition, asset classification and provisioning prescribed by RBI/SIDBI. Recovery of loans and advances is appropriated first towards recovery of expenses, then towards interest and the balance, if any, towards principal. However, in the case of Compromise Settlement and sale of units taken over under the SFCs Act, 1951 and Revenue Recovery proceedings, the proceeds are apportioned first towards recovery of expenses and then towards principal amount and lastly towards interest on satisfaction of the stipulated conditions.

1.4. Cash flow Statement

Cash flow statement is prepared using indirect method. Being the Corporation is into financing as its core business activity, the changes in loans and advances, treated as changes in operating assets and considered for arriving cash flows from operating activities.

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1.5. Earnings per shareThe Corporation presents basic and diluted earnings per share (EPS) data for its common shares. Basic EPS is calculated by dividing the net income attributable to shareholders of the Corporation by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to shareholders and the weighted average number of common shares outstanding adjusted for the effect of all dilutive potential common shares, including advance for share capital.

Calculation of EPS 2013-14 2012-13

a. Net profit including prior period items and extraordinary items after deducting current tax expenses (in Rupees)

413,376,273 684,903,414

b. Number of Equity Shares outstanding ( face value of Rs.100/- each) 21,197300 21,197,300

Basic earnings per share (a) / (b) 19.50 32.31

c. Average number of weighted equity shares (21197300 existing +989125 on account of amount received during FY 2012 and pend-ing allotment +214000*2/365 on account of amount received on 30.03.2014 and pending allotment ) ( face value of Rs.100/- each)

22,187,598 22,186,425

Diluted Earnings per share (a) / (c) 18.63 30.87

1.6. ProvisionsProvisions are recognised if, as a result of any past events, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle such obligation. Being into financing business, the corporation has made provisions for bad and doubtful debts in the financial statements. For making the provision RBI / SIDBI prudential asset classification and provisioning guidelines are considered.

1.7. Employee Payments and Retirement Benefits

Short-term employee benefits are recognized as an expense at the undiscounted amount in the profit and loss account of the year in which the related service is rendered.

Defined contribution plan: The Corporation contributes to the Provident Fund which is administered by duly constituted and approved independent trust by name KFC Employees Provident Fund Trust and such contributions are charged to revenue every year. The Corporation has no obligation other than the contribution payable to the provident fund.

Defined Benefit Plan: Gratuity liability of employees is covered under the approved Group Gratuity Scheme of LIC of India. Contributions paid under the scheme are charged to revenue. The liability for terminal encashment of earned leave to the employees is covered under the Group Leave Encashment Scheme of LIC of India and the contributions paid as per the valuation done by LIC. The amounts so paid are reckoned as expenditure for the concerned period. The Corporation is following this practice consistently during the past years and never incurred any additional liability in this regard. Hence no separate actuarial valuation done or made any provision for gaps if any.

1.8. advancesAdvances have been classified as Standard, Sub-standard and doubtful assets and provisions for possible losses on such advances are made at estimated rates which is equal to or more than the rates prescribed in the prudential norms, circulars and directives issued by RBI/SIDBI. All advances which have become Non-performing for more than one year have been written off as Bad Debts and recoveries from these cases are shown as Recovery from written off cases which is included in the Operating Income.

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1.9. Tangible Fixed assets

Fixed Assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs, if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any subsidy/ reimbursement/ contribution received for installation and acquisition of any fixed assets is shown as deduction in the year of receipt.

Fixed Assets are carried at cost of acquisition less depreciation. Depreciation on fixed assets has been provided for on written down value method and at the rates prescribed under the Income Tax Act, 1961. Depreciation on fixed assets added/disposed of during the year/period is provided on pro-rata basis (that is full depreciation for assets used for more than six months and half depreciation for others) with reference to the date of addition/disposal. Individual assets costing up to Rs. 5000 are charged to revenue in full in the year of purchase.

1.10. investments

Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as Non-current investments.

On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Non-current investments are carried at cost. However provision for diminution is made to recognise a decline, other than temporary, in the value of investments determined for each investment individually. Reduction in the carrying amount and reversals of such reductions are charged or credited to the profit and loss statement. On disposal of an investment, the difference between carrying amount and net disposal proceeds are charged or credited to the profit and loss statement.

1.11. Taxes on income

Tax expense comprises current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 enacted in India. The tax rates and tax Laws used to compute the amounts are those that are enacted, at the reporting date.

Deferred Taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted at the reporting date.

Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets including the unrecognized deferred tax assets, if any, at each reporting date, are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which deferred tax assets can be realized.

2. nOTES FORMinG PaRT OF aCCOUnTS2.1 asset Classification and provisioningIn accordance with the guidelines of RBI/SIDBI on asset classification, all loans and advances have been classified into Standard, Sub Standard and Doubtful Assets and provisioning is made as under.

Category of assets Minimum provision required (%) Provision actually made (%)

Standard Assets- MSME 0.25 0.25

Standard Assets- CRE 1.00 1.00

Sub Standard Assets 10.00 90.00

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Loans & Advances under Doubtful I category have been fully written off as bad debts. Gross and Net NPA as on 31-03-2014 is 3.45% and 0.35% respectively whereas it was 3.51% and 0.36% as on 31.03.2013.

2.2 advances towards Share capital and KSEDM project

The Corporation received Rs. 9.89 crores during the year 2011-12 and Rs.2.14 crore during the year 2013-14 from Govt. of Kerala towards Share Capital Advance. Shares for the same are yet to be issued subject to the approval of SIDBI. The total amount of Rs. 1203.12 Lakhs is shown as money received against share capital and the same is treated as potential equity for the preparation of financial statements.

The Corporation has also received Rs. 10 crores during the FY 2011-12 and Rs 5 Crores during the FY 2013-14 from GoK for meeting the expenses in connection with KSEDM. Rs 6.50 Crores has been spent till 31.03.2014 for the KSEDM project. The Corporation has commitments to pay interest on account of loans disbursed under KSEDM amounting Rs. 13.40 Crores as on 31.03.2014. The total fund allocation including interest commitment is Rs 19.90 crores against the total government grant of Rs 15 Crores.

2.3 investments. Investment with Kerala Venture Capital Fund is amounting to Rs. 66 lakhs. Further Rs 29,000/- being the value of investment with KITCO, which was already provided in earlier years, now reversed and reckoned to investment. The Corporation has received bonus shares issued by KITCO to the tune of 1421 equity shares. The total investment in KITCO stands at 1450 shares (including 29 shares previously held). Further we have received an amount of Rs. 217500/- as dividend during the year. In this juncture the investment appears to be having realizable value and hence the previous provision reversed.

2.4 income Tax assessmentsIncome Tax Returns have been filed up to Assessment Year 2013-14 and assessment has been completed up to the Assessment Year 2009-10. Appeals filed by the Corporation are pending before the Hon. High Court for the Assessment Years 1992-93, 1993-94 and 1995-96. Appeals before CIT (Appeal) are pending for Assessment Years 1999-2000, 2002-03, 2009-10 and 2011-12. Orders for the Assessment Years 1994-95, 1997-98, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 are pending before Assessing Officer. The details of income tax paid during the year shown under other current assets, not adjusted due to pending assessment / appeal are as follows:

Date of Payment assessment year amount Rs in Lakhs

23.07.2013 2008-09 10.00

31.08.2013 2004-05 12.70

28.12.2013 2006-07 8.75

Total 31.45

2.5 Deferred Tax LiabilitiesThe break-up of deferred Tax Liabilities/(Assets) into major components of the respective balances is as given below:-

Particulars as on 31.03.2013

For 2013-14

as on 31.03.2014

On Depreciation (47.49) 4.68 (42.81)

On income not received 851.38 141.76 993.14

On outstanding expenses (502.75) (41.83) (544.58)

Total 301.14 104.61 405.75

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2.6 Related Party Disclosures as per aS 18 a. List of Related Parties - Holding Company - NIL - Subsidiary Companies - NIL - Key Management Personnel - Mr. P. Joy Oommen, Chairman and Managing Director

B. Related party TransactionsMr. Joy Oommen joined the Corporation in February 2013 and total remuneration paid to him during the financial year 2013-14 is Rs. 9.30 Lakhs which include incentive of Rs.0.18 Lakhs . There are no payments on account of PF or Gratuity to him during the year.

2.7 impairment of assetsThe fixed assets are carried at written down value (WDV) consistently using appropriate depreciation rates. All other operating assets are carried at current / transaction value. None of the assets are tested for impairment annually since there were no incidences of such impairment indicators.

2.8 Segment ReportingThe Corporation operates as a single unit with a single profit center and has concentrated its activity on term lending only as a single product.

a. Primary Segment (The Business Segment)The Corporation operates mainly in the business segment of fund based financing activity. All other activities revolve around the main business. Further, all activities are carried out within India. As such, there are no separate reportable segments as per the provisions of AS 17 on ‘Segment Reporting’ issued by the Institute of Chartered Accountants of India.

B. Secondary Segment (The Geographical Segment)The area of operation of the Corporation is confined within the state of Kerala. As a result separate segment information for different geographical segments is also not disclosed.

2.9 Contingent liabilitiesThe liabilities being, a possible obligation that arises from past event and existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Corporation. The contingent liabilities of such nature as on 31.03.2014 are estimated as under

- On account of Income Tax Rs. 1029.72 lakhs- On account of suits filed against the Corporation Rs. 71.80 lakhs- On account of Service Tax Rs. 57.34 lakhs- On account of Gratuity payable to retired employees from 01.07.2001 to 31.07.2007 Rs. 86.60 lakhs- Lease rent payable to Government of Kerala- 5% revised lease rent proposal received from the District

collector of which 2% is provided and balance 3% is under dispute which amounts to Rs. 4.43 Lakhs.

2.10 accounting for Leases

Financial Leases:Leases in which the company transfers substantially all the risks and benefits of ownership of the asset are classified as finance leases. The Corporation has not undertaken any contracts under this category during the reporting period.

Operating Leases:Where the Corporation is lesseeOperating leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the

35

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leased item, are classified as operating leases. The Corporation has taken buildings in various districts for the functioning of its branch offices, under this category and all the contracts are for a period of more than one year with fixed provision for periodical increase in rent amount. Operating lease rent payments are recognized as an expense in the statement of profit and loss every month as and when accrued or paid. During the current reporting period Rs. 52.54 Lakhs charged to profit and loss account in this regard. Since there is no contingent element involved in the lease agreements, this method is more representative of time pattern of the Corporation's benefit.

Where the Corporation is lessorLeases in which the Corporation does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. A portion of the Corporation's own building let out for rent is reportable in this category. The assets subject to operating lease are included in the fixed assets and charged depreciation as per AS-6. The total amount of Lease income on an operating lease received during the year is Rs. 59.66 Lakhs and the same is recognised in the statement of profit and loss in line with the existing revenue recognition policy.

2.11 assets acquired in satisfaction of claims Assets acquired in satisfaction of claims amounting to Rs. 400.34 lakhs relates to M/s. Jayalakshmi Builders, Trivandrum which is retained as such since the Hon. High Court of Kerala has ordered ‘Status Quo’ regarding possession. The acquisition was done in the financial year 2008-09 and accounted as NPA recovery in that financial year. This amount will not affect the current or previous year profits reported in the current financial statements.

2.12 Self Employment Venture FundAmount shown in Self Employment Venture Fund under the head Other Liabilities is unchanged from that of previous year.

2.13 Bad debts Written OffDuring the year the corporation has written off Bad Debts (technical write off to maintain asset quality) amounting to Rs. 4138.60 lakhs. Constructive steps have been initiated for the recovery of these accounts and the amounts will be included in revenue as and when recovered.

2.14 Suspense account. The amount outstanding in Suspense Account amounting to Rs. 11.04 lakhs comprises of amount kept in suspense as per court orders, Inter Branch transactions and amount received from LIC towards maturity amount of policies of the employees.

2.15 Secured / Un-secured Loans.Loans from SIDBI and other Banks are secured by creating hypothecation on receivables as primary security for the loan. There are no other charges created on any of the assets of the Corporation on account of borrowings. The Corporation raised Rs. 200 Crores this year by way of 8.72 % Non-convertible, redeemable, Non-SLR bonds by way of private placement. The bonds are guaranteed by the Government of Kerala and the interest thereon is paid on half yearly basis on due dates.

2.16 Employee Expenses.Employee Pay & Allowances includes an amount of Rs. 26.15 lakhs for proportionate DA arrears declared by Govt. of Kerala.

2.17 Office BuildingHead Office and Branch Office Thiruvananthapuram are functioning on the land measuring 29.44 Ares (73

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A n n u A lRepoRt


cents) in Sy. No. 3647 of Kowdiar Village leased from Govt. of Kerala for a period of 30 years from April 2008

at annual lease rent fixed by the State Govt. from time to time.

2.18 MaT Credit as per income Tax actThe total amount of MAT credit available on account of the tax paid U/s 115JB of the Income Tax Act for the assessment years 2010-11 and 2011-12 is Rs. 1982.38 Lakhs. Out of this an amount of Rs. 1452.74 Lakhs MAT credit claimed U/s 115JA of the Income Tax Act for the assessment years 2012-13, 2013-14 and 2014-15. The provision for income tax made during the year is after adjusting Rs. 454.55 Lakhs MAT credit for the assessment year 2014-15. Since there is an element of contingency in availing MAT credit due to availability of future taxable profit and assessments/appeals pending before the authorities for these periods, no separate provision for credit made in the books of accounts.

2.19 Provision for income TaxThe income tax comprises of current and deferred tax. The provision for income tax is made as per the income tax rules and previous income tax assessments. The tax is calculated on income on receipt basis which is consistently followed by the corporation for the past years and the Income tax department also accepted the same for assessment purpose. The provision for income tax made during the year is after adjusting Rs. 454.55 Lakhs MAT credit for the assessment year 2014-15. The deferred tax assets and liabilities are recognised, for the expected tax consequences of temporary / timing differences between the depreciation, accrued income and expenditure. Current year provision for tax is calculated as below.

Taxable income calculated as per IT Act - Rs. 56,66,70,796Income tax thereon - Rs. 19,26,11,404Less: MAT credit - Rs. 4,54,55,250Balance Charged to Profit & Loss A/c - Rs. 14,71,56,154

2.20. Prior period itemsThe prior period income of Rs.247.95 Lakhs shown in the profit and loss statement represents the Kerala State Entrepreneurship Development mission (KSEDM) project expenses charged to operating expenses of the Corporation during the previous years. Such expenditure is now reversed and charged to the lumpsum amount received from Government of Kerala for meeting KSEDM project implementation expenses.

2.21. Grants and SubsidiesThe receipts in the nature of grants and subsidies received are utilized for the purpose for which the same is granted. The undisposed portion of subsidies to loanees ( State subsidy, Development board subsidies etc.) are kept as other current liabilities and will be disposed subject to the satisfaction of terms and conditions thereof by the beneficiaries.

2.22. Sector wise Classification of Loans & advances

As on 31.03.2014, the Sector wise Classification of Loans & advances is as below.

Sector Principal Outstanding

No Amt in Lacs % of outstanding

CRE 645 41254 22.91

Hotel 986 68581 38.09

Hospitals 97 7121 3.96

Manufacturing sector & others 2130 63082 35.04

Total 3858 180037 100.00

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The bifurcation of Loans & Advances and Long term Borrowings due within 1 year and above 1year is given

below.

2.23 interest income and rebateThe interest received on loans and advances and Interest rebate extended on loans during 2013-14 are

Rs.21525.79 Lacs and Rs.1846.54 Lacs and during 2012-13 are Rs.18495.71 Lacs and Rs.1079.68 Lacs

respectively.

2.24 The Board’s Dividend proposalThe Board of Directors of the Corporation in their meeting held on 16.06.2014 proposed to the Annual

General Meeting a dividend of Rs. 5/- per share (5% of the paid up value of Rs. 100 /- per share) for the

financial year 2013-14. A provision to the tune of Rs. 1059.86 Lakhs for proposed dividend and Rs. 180.12

Lakhs for dividend tax is made in the financial statements to this effect.

2.25 Previous Year's Figures Previous year's figures have been regrouped and reclassified wherever found necessary.


Due within 1 year Above 1 year

Loans & Advances 35922.11 144115.21

Long term borrowings 21313.04 96495.93

` in Lacs









38

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-14

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a. Capital 2013-14 2012-13

a) CRAR (%) 21.57 24.94

b) Risk Weighted Assets

1) On Balance Sheet items 180037.32 140142.96

c) Share holding pattern as on Balance Sheet date

Amount % %

1. Government of Kerala (including advance) 21776.92 97.22 97.19

2. SIDBI 613.33 2.74 2.76

3. Commercial Banks, Insurance Cos. Pvt. Shareholders etc. 10.17 0.05 0.05

TOTaL 22400.42 100 100.00

d) Net worth 41483.77

B. Asset Quality and Credit Concentration: Amount % %

a) Net NPAs to Net Loans and Advances. 621.26 0.35 0.36

b) Net NPAs under the prescribed asset classification categories

Sub Standard Assets 621.26 0.35 0.36

c) Provisions:

2013-14 2012-13

1. Provision for Standard Assets 742.67 594.13

2. Provision for NPA 5591.37 4429.2

3. Provision for Investments 8.38 8.67

4. Provision for Income Tax 1471.56 2060.81

5. Provision for Deferred Tax Liability 104.61 -67.68

6. Proposed Dividend 1059.87 1695.78

d) Movement in Net NPA (%)

2013-14 2012-13 Variance

Sub Standard 0.35 0.36 -0.01

TOTaL 0.35 0.36 -0.01

note: 21

DiSCLOSURE REQUiREMEnTS: ` in Lacs

39

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A n n u A lRepoRt


` in LacsC. Liquidity:

a) Maturity pattern of Rupee assets.

itemsLess than or

equal to 1 year

More than 1year up to

3 years

More than 3years up to

5 years

More than 5 years up to

7 years

More than 7 years up to

10 years

More than

10 yearsTotal

Total assets 35922.11 68619.38 39482 20800.23 15213.60 0.00 180037.32

Total Liabilities 21313.04 32882.31 19708.04 25774.44 18131.14 0.00 117808.97

2013-14 2012-13

D. Operating Results:

a) Interest income as a percentage to average working funds - 13.78 14.11

Interest Income 21,822.17 18,701.72

Average Working Funds 1,58,350.07 1,32,580.90

b) Non-interest income as a percentage to Average Working Funds - 3.03 5.33

Non-interest income 4,797.23 7,068.23


c) Operating Profit (+) / Loss (-) as a % to Average Working Funds - 4.28 7.82

Operating Profit (+) / Loss (-) 6,773.00 10,370.00


d) Return on Average Assets - 3.96 7.22

Returns (operating profits + depreciation) 6,837.58 10,427.02

Average Assets 1,72,811.50 1,44,330.00

e) Net profit (+) / Loss (-) per employee 17.59 28.80

No. of employees 235 232

Net profit (+) / Loss(-) 4,133.76 6,849.03







40

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-14

A n n u A lRepoRt


` in LacsCaSH FLOW STaTEMEnT


FOR THE PERiOD 2013-14 2012-13

a Cash flows from operating activities

Interest and other Revenue receipts (A) 26,380.73 25383.46

Interest and other Financial Charges (B) (12,714.31) (10,021.68)

Payment to employees and Administrative expenses ( C) (2,929.23) (2,755.03)

Operating profit before Working Capital Changes (A+B+C) 10,737.19 12,606.75

Increase in operating assets (Loans and advances) (44,032.96) (18,725.48)

Long term borrowings (Refinance from SIDBI) 2,710.00 5,900.00

Repayment SIDBI Finance (12,602.02) (16,000.00)

LOC from Banks 27,500.00 20,000.00

Repayment of LOC from Banks (9,608.76) (12,274.24)

Decrease in other current assets (912.00) (145.63)

Increase in Other Liabilites 10,097.24 10,230.31

Net cash from operating activities before Income Tax (16,111.31) 1,591.71

Income Tax paid (3,474.55) (1,730.00)

Net cash from operating activities after tax (x) (19,585.87) (138.29)

B Cash flows from investing activities - -

Interest received on deposits / Investments in Mutual Funds 235.12 377.54

Purchase of fixed assets (50.87) (120.11)

Sale of fixed assets 7.40 9.97

Investments 999.71 2,534.00

Net cash from investing activities (Y) 1,191.36 2,801.41

C Cash flows from financing activities - -

Share Capital from State Government/Other Advance from Govt 214.00 -

Non - SLR Bond issued 20,000.00 -

Repayment of Long term borrowings (Bonds) - (2,453.00)

Dividend and Dividend Tax Paid (1,971.01) (1,847.82)

Net cash from financing activities (Z) 18,242.99 (4,300.82)

Net increase in cash and cash equivalents (x+Y+Z) (151.52) (1,637.70)

Cash and cash equivalent at the beginning of the Financial year 1,729.13 3,366.83

Cash and cash equivalent at the end of the Financial year 1,577.61 1,729.13









41

2013-14

A n n u A lRepoRt


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A n n u A lRepoRt


49

2013-14

A n n u A lRepoRt


KERALA FINANCIAL CORPORATION(INCORPORATED UNDER THE STATE FINANCIAL CORPORATIONS ACT No. LxIII OF 1951

H.O: aSWaTHY, VELLaYaMBaLaM, THiRUVananTHaPURaM - 695 033.Phone: 0471-2737500 (30 lines) Fax: 2311750,2318541, 2313813, 2722090

Email: [email protected] Website: www.kfc.org

P R O X Y

I/We ...........................................................................................................................................(folio No.)

of ..................................................................being a share holder of the Kerala Financial Corporation holding shares

Nos. ........................................................................................................... hereby appoint Shri/Smt. ...................................

.............................................. of ............................... (or failing him

Shri/Smt. ................................................................ of ..........................................................) as my/our proxy to vote for

me/us and on my/our behalf at the meeting of the shareholders of the Corporation to be held at ..............................

..........on the ...................................day of .......................................and at any adjournment thereof.

Signed this the........................ day of .................................

Notes1. The proxy need not be a member of the Corporation.2. The proxy form signed across Re.1/- Revenue Stamp should reach the Corporation’s Registered office at least 48 hours before the meeting.

Signature of share holder on

Re.1 /- Revenue Stamp

50

2013

-14

A n n u A lRepoRt


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2013-14 - Kerala Financial Corporation (KFC), Profile ... 2013-14 Annu Al RepoRt Kerala Financial Corporation Kerala Financial Corporation (KFC) is one of the premier financial institutions