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AnnuAl RepoRt 2012-13

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ContentsMessage From Hon. Chief Minister 03| Financial 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 21 | Notes forming part of financial statements 23| Significant Accounting Policies and Notes to Accounts 29 | Disclosure Requirements 34 | Cashflow Statement 36 | Summary of operations 37 | Highlights of performance 45| Proxy form 47

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OOMMEN CHANDYCHIEF MINISTER

GOVERNMENT OF KERALA

Kerala Financial Corporation (KFC) is the forerunner of all SFCs in the country that plays a key role in providing financial assistance to the industrial growth of Kerala.

Kerala State Entrepreneur Development Mission (KSEDM) provides interest subsidy for encouraging the youth in the development of the society and for reducing unemployment in the State.

My best wishes to KFC and its customers.

OOMMEN CHANDY

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K. M. MANIMINISTER FOR FINANCE, LAW

& HOUSINGGOVERNMENT OF KERALA

I am extremely happy to note that the Kerala Financial Corporation (KFC) is celebrating its diamond jubilee this year. KFC, the pioneer development financial institution of the State and the Best Performing State Financial Corporation of the country, has always been in the forefront launching new schemes and catering to the ever changing needs of its clients. Apart from contributing to the overall economic and social development of the State it has been making significant contribution to the State exchequer by way of taxes, dividend etc., too.

The Corporation's performance as the nodal agency of the dream project of the State Government, 'Kerala State Entrepreneur Development Mission', adds another feather to its cap. The new schemes along with the Government of Kerala's newly launched Interest Subvention scheme will make the investment ambience of the State much more attractive.

I hope that KFC will continue to provide timely assistance to entrepreneurs and keep up its good performance. I wish all its employees, customers and stake holders all success in its future endeavors.

K.M. Mani

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Sri. Namgial(Chief General Manager, SIDBI)

Board of directors

Sri. Yogesh Gupta, IPSC M D

(Till 23-02-13)

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

Adv. K. PonnachanSri. 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)

Smt. Premilla .V. Nair, FCA Smt. Lekshmi Kylas(Senior Divisional Manager, LIC of India)

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PrinciPal officers ( as on 31.03.2013)

General ManaGers

financial controller

Deputy General ManaGers

Soya. K

Corporate seCretary

assistant General ManaGers

statutory auDitors

Premnath RavindranathAsok Kumar. NDinesh. A.G

Sabu Thomas

Jose & Hemachandran, Chartered Accountants, Thiruvananthapuram

Jayasankar. R Mushtaq Ahammed. M Janardhanan. CRajeev. K.S Shaji Sukumar. S

Sreekumar. P.BMohanan. K.KAjith Kumar. KAjithkumar. K.GAnnamma. MSreelatha SukumarVenkitaraman. P.SHiran Das. K.MSivadasan. A.KAbdul Kadar. A.BAnil John AbrahamHaridas. M.RSreenivasa SarmaPremalatha. M.KJeothi Basu. HMohanan Achari. CFrancis. JRajeevan. K.NDolly. K.LPrasad. A.CAnnamma. K.PAdarsh. RHariharan. NBabu. P.KGirish ChandranManisankar. M

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Notice is hereby given that the 60th Annual General Meeting of the shareholders of Kerala Financial Corporation will be held at the Head Office of the Corporation, Vellayambalam, Thiruvananthapuram on Friday, 19th of July, 2013 at 11.00 A.M. to transact the following business:To consider and adopt the Balance Sheet as at 31st March, 2013 and the Profit & Loss account for the year ended 31st March, 2013 of the Corporation, the Report of the Board of Directors on the working of the Corporation for the Financial Year 2012-2013 and the Auditor’s Report on the said Balance Sheet and Accounts.1. To appoint Statutory Auditors of the Corporation for the Financial Year 2013-2014 under Section 37 (1) of the

SFCs Act.2. To declare dividend.3. Copy of financial statements and Directors’ Report are enclosed.

By Order of the Board

Premnath Ravindranath

General Manager (F&M)Place : Thiruvananthapuram,Date : 14.06.2013.

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

01.07.2013 to 19.07.2013 (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.

NOTICE TO SHARE HOLDERS

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: kfc@kfc.org Website: www.kfc.org

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Board of Directors of the Kerala Financial Corporation (KFC) has great pleasure in presenting the 60th Annual Report on the performance of the Corporation for the Financial Year ended March 31, 2013. 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 60 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, dis-bursement and recovery of financial assistance with the operational profit making a significant leap crossing the `. 100 crore mark for the first time in the history of the Corporation. An analysis of the operational perfor-mance of the Corporation during the last three years is given below:

DIRECTORS’ REPORT

Financial Year 2012-13 2011-12 2010-11

Portfolio Size 140143 123984 112481

Sanctions 66139 53901 50706

Disbursements 47592 46457 44344

Recovery 54022 46717 35473

Total Income 25770 21425 16598

Total Expenditure 15400 15162 10428

Operating Profit 10370 6263 6170

Net Profit 6683 4565 3640

Capital Adequacy Ratio % 24.94 20.51 22.20

Net NPA % 0.36 1.3 1.88

KFC has emerged as the best performing public sector undertaking 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 Corporation earned the highest ever profit of `. 66.83 crores during the FY 2012-13. The Non-performing Assets are at the lowest level. The increase in profit was achieved despite KFC charging competitive rates of interest on Term Loans. This was achieved through reduction in establishment costs, higher efficiency in Funds Management and resource mobilization under a robust Asset Liability Management (ALM) frame work.

` Lacs

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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 `.661.39 Crores during the FY 2012-13 a growth of 22.70% when compared with the previous FY.

2012-13Segment

2011-12

No. Amount No. Amount

290 19319 Micro 417 32595

19 3121 Small 45 8934

Nil Nil Medium Nil Nil

379 43699 Others 103 12372

688 66139 Total 565 53901

` Lacs

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

170

110121 136

246

349

616

507539

661

SANCTION

` Crores

` Crores

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RecoveryTotal recovery during the year was `.540.22 crores. Out of this, principal recovery was `.331.28 crores and interest recovery amounted to `.208.94 crores. Out of the total recovery, an amount of `.64.29 crores was by way of compromise settlement. On the recovery front, the total amount collected has gone up by 15.64%. The interest income, which is an indicator of profitability and net efficiencies, has gone up by 20.28%. 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.

DisbursementsAn amount of `.475.92 crores was disbursed during FY 2012-13, recording a growth of 2.44% 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.

0

50

100

150

200

250

300

350

400

450

500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

11985 79

97

186

294

420444

465 476

DISBURSEMENTS

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100

200

300

400

500

600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

273245

214 199 218

269300

314

467

540

RECOVERY

` Crores

` 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 0.36% in terms of Net NPA, and to around 3.51% 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 pre-pared 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 31.03.2012 and 31.03.2013 as well as provision requirement there-on are given in the table below:

CategoryPrincipal Outstanding Provision

2012-13 2011-12 2012-13 2011-12

Standard 135222 119519 594 495

Substandard 4921 4465 4429 2902

Doubtful – I - - - -

Total 140143 123984 5013 3397

Capital Adequacy Ratio:Capital to Risk - weighted Assets Ratio (CRAR) was at 24.94 % during the year under report, as against the minimum of 9% prescribed.

` Lacs

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Dividend:During this year the corporation has proposed a dividend of 8% on paid up share capital, amounting to

`. 16.95 crores

ISO Certification:The Quality Management Certificate was validated and changed over to new version IS/ISO 9001-2008 by Bureau of Indian Standards after conducting surveillance/ renewal audit. The current license is valid till 21st June,2013. Application for renewal of license for a further period of 3 years is submitted to Bureau of Indian Standards (BIS). 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 2013 is at `.211.97 crores.

` Crores

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Refinance from SIDBI & LOC from Commercial BanksThe Corporation availed refinance of `.59 crores from SIDBI by way of Line of Credit during the FY 2012-13 against `. 79.00 crores availed in the previous financial year. Repayment during the year was `.160 crores. Payment towards interest and service charges to SIDBI was `. 38.47 crores. Aggregate of borrowing from SIDBI, outstanding at the year-end was `.337.71 crores. Corporation also availed `. 300 crores LOC from vari-ous commercial banks during the FY 2012-13. Aggregate outstanding LOC at the year end was `.457.91crores.

Bonds:The Corporation redeemed SLR Bonds of `. 24.53 crores during the FY and balance outstanding as on 31.03.2013 was `. 200.00 crore Non SLR Bonds. An amount of `. 184.39 lakhs was paid to the State Govern-ment as commission for guarantees extended for the Bonds.

Human ResourcesFifteen employees retired from the service on attaining superannuation. Total staff strength as on 31.03.2013 was 232. Corporation recognizes that key resources for achieving high levels of excellence are its people who need to be motivated and developed. During FY 2012-13, training was imparted to 76 employees through different training programmes and promotion given to 67 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 proce-dures are scrupulously complied with. The Corporation has designated State Public information Officers, Assis-tant 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.

Board of Directors:As on March 31, 2013 the Board consisted of the following directors as per the table shown below

Name of the director Designation Tenure

Shri. P. Joy Oommen Chairman & MD 23.02.13 -

Shri Yogesh Gupta IPS Chairman & MD 07.09.11 - 23.02.13

Shri K.S.Srinivas IAS Special Secretary (Industries & IP) 09.09.10 -Shri Sanjay Garg IAS Secretary (Finance & Expenditure) 15.12.10 – 12.12.12

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

Smt Premilla V Nair Chartered Accountant 26.09.11 -Shri S.V.G.Nanda Gopal Chief General Manager, SIDBI, Chennai 20-01-12 - 21.08.12Shri Namgial Chief General Manager, SIDBI, Mumbai 21.08.12 -Smt. Indumathi Sreedhar Dy. General Manager, SIDBI, Ernakulam 18.06.10 -

Shri Ravi JhaGeneral Manager (Treasury)State Bank of Travancore

18.05.11 – 21.08.12

Shri.S. Chandrasekharan General Manager (Treasury)State Bank of Travancore

21.08.12-

Smt. Lekshmy Kylas Senior Divisional Manager,LIC 07.06.11 -

Sri.P.Joy Oommen took charge as Chairman and Managing Director of the Corporation on 23.02.2013, in place of Sri.Yogesh Gupta, IPS who was relieved on 23.02.2013. The Board places on record its deep appreciation of

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the service and contributions rendered by Sri.Yogesh Gupta, IPS during his tenure as the CMD of the Corpora-tion.

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 differ-ent 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 11.07.2012. M/s. Jose & Hemachandran, Chartered Accountants, were appointed as Statutory Auditors of the Corporation for the financial year 2012-13. The financial state-ments for the year 2011-12 were approved and a dividend @ 7.5% was also declared in the Annual General Meeting.

Directors’ Responsibility Statement:The Board of directors confirm that in the preparation of Profit and Loss Account for the year ended March 31, 2013 and the Balance Sheet as at that date-

i. the applicable guidelines prescribed for SFCs have been followed and there has been no material de-parture. Accrual method of accounting is followed for standard assets and cash basis for non-perform-ing assets from 2005-06;

ii. the Directors selected such accounting policies which would 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;

iii. the Directors have taken sufficient care for maintenance of accounting records;

iv. the accounts for the year ended March 31, 2013 have been prepared on a going concern basis.

AuditingThe accounts of the Corporation are audited on a quarterly basis by the Statutory Auditor. Concurrent Audit of branch operations is also now in place through reputed Chartered Accountants on a monthly basis. Further, post-sanction scrutiny of all loan sanction above `. 100 lakhs and compromise settlement sanction of above `.25 lakhs are also carried out as a prudent control mechanism and risk mitigation measure. A pre-disburse-ment audit for disbursements above `. 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 2011-12.

Shareholder information:The composition of shareholders as on March 31, 2013 is furnished below:

Shareholders `. in lakhs % of Shareholding

Government of Kerala 20573.81 97.06SIDBI 613.33 2.89LIC 7.10 0.03SBT 2.10 0.01Others 0.96 0.01Total 21197.30 100.00

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New initiatives and Future Plans:

KSEDM (Kerala State Entrepreneur Development Mission)The KSEDM scheme announced by Shri K.M.Mani, Hon’ble Minister for Finance, Law and Housing has brought about a paradigm shift in the attitude of people towards entrepreneurship and to reduce the unemployment of the educated youth of the state. The scheme was inaugurated on 02-02-2012 with the joint participation of Public and Private sectors and Panchayats (PPP Model) and KFC as the nodal agency. The efforts of KFC is bringing about a silent revolution in a state previously not know 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 `.20.00 lakhs. More than 400 units, associated with about 1000 first generation entrepreneurs are in various stages of establishment in the first phase of implementation of the scheme, which has given a new direction to the youth of Kerala. 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 stand-ards.

IT Initiatives:Corporation aims at prioritizing itself as a technologically advanced customer centric institution. Corporation has made substantial progress in implementing the core financial solution (CFS) developed by TCS. The soft-ware 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. The loan application is now available online. 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 dis-bursement 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 con-tact details of all the branch locations with the support of maps. The site hits have crossed 16 lakhs so far. The KFC site is now linked with the Finance Minister’s website http://fm.kerala.gov.in/. The grievances registered by the public in the Finance Minister’s site will be replied within 5 days by the nodal officer of the Corporation. 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 Schemes• Innovative Scheme for Cinema/Serial Production

Corporation has launched an innovative scheme for producing feature films and TV serials with maxi-mum financial assistance of `. 2 crores with a repayment period of 18 months. Satellite, Music, & CD rights are considered as part of collateral.

• Scheme for Theatres & Multiplexes

This scheme is providing assistance for modifying existing cinema theaters, construction of new mul-tiplexes and for introducing new technology like digital technology and providing quality service to Cinema goers etc.

• Scheme for Food Safety

Innovative scheme launched for setting up in-house food testing labs and also for setting up waste management plants by Hotels/Restaurants/Food processing units. Maximum assistance is `. 100 lakhs with repayment period of 5 year.

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Future Plans:The Corporation has been contemplating to achieve a portfolio size of over `.2500 crore by 2015. During the FY 2013-14 corporation plans to disburse around `. 600 crore to manufacturing sector, hospitality, IT and en-tertainment sector. Special thrust will be given to SC/ST, women entrepreneurs in manufacturing sector and Micro, Small and Medium enterprises in the manufacturing sector and renewable energy/ solar/ wind energy while exposure to CRE sector will be reduced. The other proposed initiatives are:

a) Non SLR Bond issueThe corporation’s proposes to raise Non SLR Bonds to the tune of `.400 crore from the market during financial year 2013-14 depending on the market conditions and requirement of funds.

b) Interest subvention scheme to manufacturing sectorKFC 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. Fi-nance Minister of Kerala, Sri. K.M. Mani. New ventures with technologies developed by Central and State Re-search and Development Organisations as well as Agencies like 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, informa-tion 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. Government of Kerala has earmarked `. 10 Cr. for pro-viding interest subsidy. 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 depositsRBI has granted in principle approval to the Corporation for raising public deposits subject to obtaining mini-mum 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 the FY 2013-14.

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.

AcknowledgementsThe Directors wish to place on record their appreciation to the Government of Kerala, Small Industries Devel-opment 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, New India Assurance Company Ltd., M/s. Brickwork ratings, Bombay Stock Exchange, Tata Consultancy Services, Kerala State IT Mission, Department of Income Tax, CAG, Concurrent Auditors, Statutory auditors, consultants and customers for their continued

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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

Thiruvananthapuram

12.06.2013

P.Joy Oommen

Chairman & Managing Director

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To,

The Members of Kerala Financial Corporation

Report on the Financial Statements We have audited the accompanied financial statements of Kerala Financial Corporation (“the Corporation”), which comprise the Balance Sheet as at 31st March,2013, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial StatementsThe Corporation’s Management 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 control 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.

Auditors’ 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 the 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 the 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 the 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 the 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.

OpinionIn our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) in the case of the Balance Sheet, of the state of affairs of the Corporation as at 31st March, 2013;

(b) in the case of the Statement of Profit and Loss, of the profit of the Corporation for the year ended on that date, and

INDEPENDENT AuDITOR’S REPORT

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(c) in the case of the Cash Flow Statement, of the cash flows of the Corporation for the year ended on that date.

Report on Other Legal and Regulatory Requirements2. As required by the Act, we report that:

(a) 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.

(b) In our opinion, proper books of account as required by law have been kept by the Corporation so far as it appears from our examination of those books.

(c) The Balance Sheet, Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

(d) In our opinion, the Balance Sheet, Statement of Profit and Loss, and the Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act 1956 .

For Jose and Hemachandran Chartered Accountants FRN: 001360 S

Thiruvananthapuram12-06-2013

Krishnakumar S. ACAPartner, M.No: 229106

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Particulars Note No.As at 31 March, 2013

` In LacsAs at 31 March, 2012

` In LacsA EQUITY AND LIABILITIES1 Shareholders’ funds

(a) Share capital 1 21,197.30 21,197.30(b) Reserves and surplus 2 16,189.57 11,388.12(c) Money received against share capital 989.13 0.00

2 Non-current liabilities(a) Long-term borrowings 3 89,809.75 94,636.99(b) Deferred tax liabilities (net) 301.15 368.83(c) Long-term provisions 4,429.20 2,902.37

3 Current liabilities(a) Short-term borrowings 4 9,753.64 0.00(b) Other current liabilities 5 3,335.81 3,848.19(d) Short-term provisions 6 5,248.49 3,064.49

TOTAL 1,51,254.04 1,37,406.29

B ASSETS

1 Non-current assets(a) Tangible Assets 7 336.12 274.80(b) Non-current investments 8 101.00 185.00(c) Other non-current assets 9 1,458.16 1,680.67

2 Loans and Advances 10 1,40,142.96 1,23,983.89

3 Current assets(a) Current investments 11 2,000.00 4,450.00(b) Cash and cash equivalents 12 1,729.13 3,366.83(c) Other current assets 13 5,486.67 3,465.10

4 Significant Accounting Policies and Notes to Accounts 19

TOTAL 1,51,254.04 1,37,406.29

Balance Sheet as at 31 March, 2013

For and on behalf of the Board of Directors

Premilla V Nair Director

Sabu Thomas Financial Controller

P.Joy Oommen Chairman & Managing Director

As per our report of even dateFor Jose & Hemachandran

Chartered AccountantsFirm Reg No: 001360S

Thiruvananthapuram12.06.2013

Krishna Kumar SPartner, M No: 229106

Premnath RavindranathGeneral Manager

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Particulars Note No. For the year ended 31 March, 2013

For the year ended 31 March, 2012

` In Lacs ` In LacsA CONTINUING OPERATIONS1 Revenue from operations 14 25,293.97 19,809.122 Other income 15 475.99 1,615.853 Total revenue 25,769.96 21,424.974 Operating Expenses

(a) Interest expenses 16 10,021.68 9,830.68(b) Employee benefits expense 17 2,317.31 1,792.40(c) Administrative Expenses 18 437.71 401.87(d) Depreciation and amortisation expense 57.02 58.40(e) Bad debts written off 2,566.42 3,078.20Total expenses 15,400.14 15,161.55

5 Operating Profit before exceptional and extraordinary items and tax 10,369.82 6,263.42

6 Less: Provision for Bad and Doubtful debts 1,626.39 481.567 Profit before tax 8,743.43 5,781.868 Tax expense:

(a) Current tax expense 2,060.81 1,216.672,060.81 1,216.67

B Discontinuing operations 0.00 0.009 Profit for the year 6,682.62 4,565.19

10 Earnings per share (Equity shares of Rs 100/- each):(a) Basic 32 22(b) Diluted 30 22

C Profit and loss appropriationBalance in Profit & Loss A/C B/f 4,930.14 3,333.63Net Profit for the year 6,682.62 4,565.19Total profit available for appropriation 11,612.76 7,898.82Add: Prior Period Income 98.73 0.00 Deferred Tax 67.68 131.80 Provision for FBT written back 0.00 0.02Total 11,779.17 8,030.64Less:Appropriations

Proposed Dividend 1,695.78 1,589.80Provision for Dividend tax 275.23 258.02Transfer to Reserve u/s 36 (1) (viii) 2,073.96 1,252.68

Balance Profit after appropriations 7,734.20 4,930.14Less: Prior Period Adjustments 76.58 0.00

Balance Profit carried to Balance sheet 7,657.62 4,930.14

STATEMENT Of PROfIT AND LOSS fOR THE yEAR ENDED 31 MARCH, 2013

For and on behalf of the Board of Directors

Premilla V Nair Director

Sabu Thomas Financial Controller

P.Joy Oommen Chairman & Managing Director

As per our report of even dateFor Jose & Hemachandran

Chartered AccountantsFirm Reg No: 001360S

Thiruvananthapuram12.06.2013

Krishna Kumar SPartner, M No: 229106

Premnath RavindranathGeneral Manager

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NOTES fORMING PART Of BALANCE SHEET AS AT 31.03.2013` In Lacs ` In Lacs

As at 31.03.2013 As at 31.03.2012

NOTE : 1 SHARE CAPITALAUTHORISED CAPITAL3,50,00,000 shares of `.100 each 35000.00 35,000.00Issued, Subscribed and Fully Paid up CapitalOrdinary Shares20757553 shares of `.100/- each 20757.55 19,966.25791300 Shares issued during the year 0.00 791.30

Special Shares4,39,750 shares of `.100/- each as per last B/S 439.75 439.75TOTAL 21197.30 21,197.30NOTE : 2 RESERVES AND SURPLUS(a) Spl. Reserve u/s 36(1)(viii) of IT Act, 1961As per last Balance Sheet 6207.99 4,955.30Added during the year 2073.96 1,252.68Total of (a) 8281.95 6,207.98(b) Spl. Reserve u/s 35(A) of SFCs Act, 1951 250.00 250.00(c) Profit & Loss Account 7657.62 4,930.14TOTAL {(a)+(b)+(c)} 16189.57 11,388.12NOTE : 3LONG TERM BORROWINGSBorrowings from SIDBI 33771.49 43,871.49LoC from Federal Bank 8125.00 4,062.50LoC from South Indian Bank 5725.76 9,687.50LoC from Indian Bank 7187.50 9,562.50LoC from State Bank of Travancore 5000.00 0.00LoC from Canara Bank 10000.00 5,000.00NON-SLR Bond (Guaranteed by Government of Kerala) 20000.00 20,000.00SLR Bond (Guaranteed by Government of Kerala) 0.00 2,453.00TOTAL 89809.75 94,636.99NOTE : 4SHORT TERM BORROWINGSOD from South Indian Bank 4986.83 0.00OD from Federal Bank 4766.81 0.00TOTAL 9753.64 0.00

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NOTE : 5

OTHER CURRENT LIABILITIESState Subsidy 8.91 13.42Margin Money 2.64 4.53Other Advance from Govt of Kerala. 0.00 989.13KSSEDM Advance from Govt. of Kerala 981.14 1,000.00Interest subsidy 0.15 1.35Coconut Devp. Board Subsidy 5.16 0.00Earnest Money Deposit 12.84 13.21Advance Received for sale of units 0.00 8.19Self Employment Venture fund 26.48 26.48Suspense Account 43.48 42.02Tax Deducted at Source 0.77 0.00Other Salary Deductions 0.20 0.24Gratuity Payable 0.24 0.00Other Sundry Deposits 27.94 21.87Service tax 0.05 0.80Outstanding Expenses 516.15 20.78Accrued Interest on Refinance from SIDBI 257.89 275.42Accrued Interest on SLR Bonds & Non SLR Bonds 514.55 536.05Accrued Interest on LOC from banks 257.42 326.63Audit Fee Payable 1.24 1.07Concurrent Audit Fee payable 2.28 1.50Contingent Provision against Standard. Assets 594.13 494.56Staff Dues Retained 80.53 69.88Leave Encashment Payable 1.11 0.00Unclaimed Dividend 0.06 0.02CGTMSE Fees Collection 0.45 1.04TOTAL 3335.81 3,848.19

NOTE : 6

SHORT TERM PROVISIONS(a) Provision for Taxation: As per last Balance Sheet 1216.67 1,810.26 Less: Adjd against the Advance IT during the year 0.00 1,810.26Add: Provision made during the year 2060.81 1,216.67Total of (a) 3277.48 1,216.67(b) Provision for Fringe Benefit TaxAs per last Balance Sheet 0.00 6.66Less:Adjd aganst the Advance FBT during the year 0.00 6.66Total of (b) 0.00 0.00(c ) Proposed Dividend for the year 1695.78 1,589.80(d) Provision for Dividend Tax 275.23 258.02TOTAL 5248.49 3,064.49

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NOTE : 8

NON CURRENT INVESTMENTS

Keltron Counters Ltd. 1.47 1.47

Kerala Spinners Ltd. 2.00 2.00Vanjinad Leathers Ltd. 4.91 4.91KITCO 0.29 0.29India SME Asset Reconstrution Co. 35.00 35.00Kerala Venture Capital Fund 66.00 150.00Sub Total 109.67 193.67Less : Provision for diminution in value of invest-ments

8.67 8.67

TOTAL 101.00 185.00

NOTE : 9

OTHER NON CURRENT ASSETSProperty Acquired in Satisfaction of Claims 400.34 400.34House Loans to Employees 386.52 426.24Conveyance Loan to Employees 70.47 79.32Computer Loan to Employees 1.40 2.17Other Staff Loan 0.15 0.00Advance to Employees 11.10 11.20Deposit with P&T 0.09 0.09Other Deposits 13.30 13.30Deposit with KSEB 7.33 10.45Deposit against Staff Dues Retained 80.53 69.88Interest Accrued on Staff Loans 426.03 531.90Other Advances 26.76 26.29Advance for Fixed Assets 34.14 109.49TOTAL 1458.16 1,680.67

NOTE : 10

LOANS & ADVANCES

Loans and Advances 140142.96 1,23,983.89

TOTAL 140142.96 1,23,983.89

NOTE : 11

CURRENT INVESTMENTS

Investment in Mutual Funds 0.00 700.00

Short Term Deposits with Banks 2000.00 3,750.00

TOTAL 2000.00 4,450.00

NOTE : 12

CASH AND CASH EQUIVALENTS

Cash in hand 181.09 49.59

Banks Accounts 1548.04 3,317.24

TOTAL 1729.13 3,366.83

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 NOTE : 13

OTHER CURRENT ASSETSAdvance Income Tax 3224.39 1,494.39Income Tax Deducted at source 64.24 45.93Stock of Stationery 0.00 0.00Library 0.00 0.00Suspense Account 0.00 0.02Interest Accrued on Loans & Advances 2186.02 1,915.42Interest Accrued on STD with Banks 2.97 1.76Prepaid Expenses 9.05 7.58TOTAL 5486.67 3,465.10

NOTE : 14

REVENUE FROM OPERATIONSInterest Received On Loans & Advances 18495.70 15,729.82Interest on Staff Loans 35.90 45.26Application Fees 0.79 0.80Loan Processing Fees 302.67 239.83Recovery from written off loans 6429.21 3,700.35Premium on pre-closure 29.70 93.06TOTAL 25293.97 19,809.12

NOTE : 15

OTHER INCOMEInterest on Bank Deposits 170.11 98.33Dividend From Shares 0.07 0.07Miscellaneous Income 10.88 2.82Other Income 0.29 1,223.68Rent Received 72.82 66.46Income from Insurance Agency 4.50 4.83RTI Application Fee Received 0.01 0.02Income from Mutual Fund 207.43 216.51Consultancy Service Division Receipts 0.92 2.81Profit on sale of Fixed Assets 8.96 0.32TOTAL 475.99 1,615.85

NOTE : 16

INTEREST AND FUND EXPENSESInterest on Bonds 2111.34 1,042.84Interest on Coconut Dev Board Subsidy 0.49 0.00Interest on Refinance from SIDBI 3829.66 3,995.53Interest on Line Of Credit from Banks 2759.62 3,170.38Guarantee Commission 184.39 49.41Bond Issue Expenses 20.14 101.65LOC Administrative Expenses 36.36 92.77Interest rebate on Loans 1079.68 1,378.10TOTAL 10021.68 9,830.68

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NOTE : 17

EMPLOYEE BENEFITS AND EXPENSESPay & Allowances 2101.25 1,552.58Group Gratuity Insurance 5.00 51.22Contribution to Employees' P.F 164.97 153.39Group E/L Encashment Insurance 1.00 0.00Other Staff Expenses 45.09 35.21TOTAL 2317.31 1,792.40

NOTE : 18

ADMINISTRATIVE EXPENSESRent, Rates, Taxes & Insurance 96.18 85.01Postage, courier and Telephone 23.96 23.09Printing & Stationery 18.52 19.58Vehicle Running & Maintenance 33.12 12.30Repairs & Maintenance of Buildings & Equip-ments

21.20 10.29

Revenue Recovery expenses 84.10 79.84Bank Charges and Commission 0.20 0.17Audit Fees 1.04 1.32Consultancy Charges 6.04 3.70Legal Expenses 2.83 5.64Books & Periodicals 2.28 1.36Other Expenses 71.61 72.22Travelling Expenses 17.01 12.58Board / E.C. Meeting Expenses 1.70 1.27Concurrent Audit Fee 16.44 7.59Business Development Expenses 41.48 65.91TOTAL 437.71 401.87

For and on behalf of the Board of Directors

Premilla V Nair Director

Sabu Thomas Financial Controller

P.Joy Oommen Chairman & Managing Director

As per our report of even dateFor Jose & Hemachandran

Chartered AccountantsFirm Reg No: 001360S

Thiruvananthapuram12.06.2013

Krishna Kumar SPartner, M No: 229106

Premnath RavindranathGeneral Manager

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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 and Accounting Standards notified 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.

SIGNIFICANT ACCOUNTING POLICIES 1.1. Change in Accounting Policy

During the year ended 31 March 2013, the revised Schedule VI notified under the Companies Act 1956, has been adopted by the Corporation for preparation and presentation of its financial statements. The adoption of revised Schedule VI has significant impact on presentation and disclosures made in the financial statements. The Corporation has also reclassified the previous year figures in accordance with the requirements applicable in the current year where ever necessary.

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

SIGNIfICANT ACCOuNTING POLICIES AND NOTES TO ACCOuNTS

NOTE : 19

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of the stipulated conditions.

1.4. 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 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 under the scheme are charged to revenue.

1.5. Advances

Advances 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.

1.6. 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 off 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 `. 5000 are charged to revenue in full in the year of purchase.

1.7. 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.

1.8. Earnings Per Share

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to

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equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all diluting potential equity shares.

1.9. 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 year. 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.

NOTES FORMING PART OF ACCOUNTS2.1 Asset Classification and provisioning

In 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

Loans & Advances under Doubtful I category have been fully written off as bad debts. Gross and Net NPA as on 31-03-2013 is 3.51% and 0.36% respectively whereas it was 3.60% and 1.30% as on 31.03.2012.

2.2 Advances.

During the year 2011-12, the Corporation received `. 9.89 crores from Govt. of Kerala towards Share Capital Advance. Shares for same are yet to be issued. The Corporation has also received `. 10 crores from GoK for meeting the expenses in connection with KSEDM. During the year, `. 18.90 lakhs was adjusted against the re-imbursement of interest to the participating Banks.

2.3 Investments.

Investment with Kerala Venture Capital Fund amounting to `. 66 lakhs after redeeming `. 84 lakhs during the year is in the nature of Long Term Investment.

2.4 Income Tax

Income Tax have been filed up to AY 2012-13 and assessment have been completed up to the AY 2009-10. Ap-peals filed by the Corporation is pending before the Hon. High Court for the AYs 1992-93, 1993-94 and 1995-96. Appeal before CIT (Appeal) is pending for AYs 1999-2000,2002-03 and 2009-10. Orders for the following AYs 1994-95,97-98,03-04,04-05, 05-06 06-07 and 07-08 are pending before Assessing Officer.

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2.5 Deferred Tax Liabilities.

The break-up of deferred Tax Liabilities/(Assets) in to major components of the respective balances is as given below:-

Particulars As on 31.03.2012 For 2012-13 As on 31.03.2013

On Depreciation (48.69)1.20

(47.49)

On income not received 794.6 56.78 851.38

On outstanding expenses (377.09) (125.66) (502.75)

Total 368.82 (67.68) 301.15

2.6 Impairment of Assets

The management is of the opinion that there is no material impairment of the fixed assets. Hence the fixed assets have been carried at WDV in the books.

2.7 Segment Reporting

The Corporation operates as a single unit with a single profit centre and has concentrated its activity on term lending only on a single product.

2.8 Contingent liabilities

Contingent liabilities are estimated as under

On account of Income Tax `. 605.29 lakhs

On account of suits filed against the Corporation `. 71.80 lakhs

On account of Service Tax `. 57.15 lakhs

2.9 Assets acquired in satisfaction of claims

Assets acquired in satisfaction of claims amounting to `. 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.

2.10 Self Employment Venture Fund

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

2.11 Bad debts Written Off

During the year the corporation has written off Bad Debts amounting to `. 2566.41 lakhs.

2.12. Prior period Adjustments.

During the year, Corporation has adjusted `. 76.57 in the P&L A/c which was recognized as interest income in the earlier years in respect of Staff loans. Line of Credit interest provision made during the previous year amounting to `. 98.73lakhs is taken as prior period income in the current year.

2.13 Suspense Account.

The amount outstanding in Suspense Account amounting to `. 43.48 lakhs comprises of amount kept in sus-pense as per court orders , Inter Branch transactions and amount received from LIC towards maturity amount of policies of the employees.

2.14 Secured Loans.

Loans from SIDBI and other Banks are secured by creating charge on receivables.

` Lacs

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2.15 Employee Expenses.

Employee Pay & Allowances includes an amount of ̀ . 400 lakhs provided for Pay Revision arrears on account of Bi-partite agreement for 5 years from 01-07-2011 and an amount of Rs 18.76 lakhs for proportionate DA arrears declared by Govt. of Kerala.

2.16 Office Building

Head Office and Branch Office Thiruvananthapuram are functioning on the land measuring 29.44 Ares (73 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.

2.17. Previous Year's Figures

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

For and on behalf of the Board of Directors

Premilla V Nair Director

Sabu Thomas Financial Controller

P.Joy Oommen Chairman & Managing Director

As per our report of even dateFor Jose & Hemachandran

Chartered AccountantsFirm Reg No: 001360S

Thiruvananthapuram12.06.2013

Krishna Kumar SPartner, M No: 229106

Premnath RavindranathGeneral Manager

34

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( `. in lacs)

A. Capital 2012-13 2011-12

a) CRAR (%) 24.94 20.51

b) Risk Weighted Assets

1) On Balance Sheet items 140142.96 123983.89

c) Share holding pattern as Balance Sheet date

Amount % %

1. Government of Kerala (including advance) 21562.92 97.19 97.06

2. SIDBI 613.33 2.76 2.89

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

TOTAL 22186.42 100 100.00

d) Net worth 38376.00

B. Asset Quality and Credit Concentration: Amount % %

a) Net NPAs to Net Loans and Advances. 492.13 0.36 1.30

b) Net NPAs under the prescribed asset classification categories

Sub Standard Assets 492.13 0.36 1562.81

c) Provisions:

2012-13 2011-12

1. Provision for Standard Assets 594.13 494.57

2. Provision for NPA 4429.20 2902.37

3. Provision for Investments 8.67 8.67

4. Provision for Income Tax 2060.81 1216.67

5. Provision for Deferred Tax Liability 301.15 368.82

6. Proposed Dividend 1695.78 1589.80

d) Movement in Net NPA (%)

2012-13 2011-12 Variance

Sub Standard 0.36 1.30 -0.94

0.36 1.30 -0.94

TOTAL

Note: 20

DISCLOSuRE REQuIREMENTS

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C. Liquidity:

a) Maturity pattern of Rupee assets.

ItemsLess than or

equal to 1 year

More than 1 year up to 3

years

More than 3 years up to 5

years

More than 5 years up to 7

years

More than 7 years up to

10 years

More than 10 years

Total

Total assets 27980 52403 36490 17729 5541 0.00 140143

Total Liabilities 16625 31656 21918 13901 5710 0.00 89810

D. Operating Results: 2012-13 2011-12

a) Interest income as a percentage to average working funds - 14.11 15.44

Interest Income 18,701.72 15,873.41

Average Working Funds 1,32,580.90 1,02,808.06

b) Non-interest income as a percentage to Average Working Funds - 5.33 5.40

Non-interest income 7,068.23 5,551.56

Average Working Funds 1,32,580.90 1,02,808.06

c) Operating Profit (+) / Loss (-) as a % to Average Working Funds - 7.82 6.09

Operating Profit (+) / Loss (-) 10,370.00 6,263.42

Average Working Funds 1,32,580.90 1,02,808.06

d) Return on Average Assets - 7.22 4.92

Returns (operating profits + depreciation) 10,427.02 6,321.83

Average Assets 1,44,330.00 1,28,467.43

e) Net profit (+) / Loss (-) per employee 28.80 20.02

No. of employees 232 228

Net profit (+) / Loss (-) 6,682.62 4,565.19

(` in lacs)

For and on behalf of the Board of Directors

Premilla V Nair Director

Sabu Thomas Financial Controller

P.Joy Oommen Chairman & Managing Director

As per our report of even dateFor Jose & Hemachandran

Chartered AccountantsFirm Reg No: 001360S

Thiruvananthapuram12.06.2013

Krishna Kumar SPartner, M No: 229106

Premnath RavindranathGeneral Manager

36

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FOR THE PERIOD 2012-13 2011-12 Cash flows from operating activities

Interest and other Revenue receipts (A) 25,383.46 17,341.08

Interest and other Financial Charges (B) (10,021.68) (8,452.58)

Payment to employees and Administrative expenses ( C) (2,755.03) (5,272.49)

Operating profit before changes in operating assets (A+B+C) 12,606.75 3,616.01

Increase in operating assets (Loans and advances) (18,725.48) (16,247.21)

Net cash from operating activities before Income Tax (6,118.73) (12,631.20)

Income Tax paid (1,730.00) (1,218.00)

Net cash from operating activities after tax (X) (7,848.73) (13,849.20)

Cash flows from investing activities -

Interest received on deposits / Investments in Mutual Funds 377.54 314.84

Purchase of fixed assets (120.11) (59.84)

Sale of fixed assets 9.97 2.59

Investment in shares and debentures 2,534.00 (4,450.00)

Decrease in other current assets (145.63) 671.92

Increase in Other Liabilites 10,230.31 1,501.66

Net cash from investing activities (Y) 12,886.09 (2,018.83)

Cash flows from financing activities -

Share Capital from State Government/Other Advance from Govt - 989.13

KSSEDM Advance - 1,000.00

Long term borrowings (Refinance from SIDBI) 5,900.00 7,900.00

Repayment SIDBI Finance (16,000.00) (11,390.48)

Non - SLR Bond issued - 20,000.00

Repayment of Long term borrowings (Bonds) (2,453.00) (3,655.00)

LOC from Banks 20,000.00 11,500.00

Repayment of LOC from Banks (12,274.24) (6,687.50)

Dividend and Dividend Tax Paid (1,847.82) (1,189.76)

Net cash from financing activities (Z) (6,675.06) 18,466.39

Net increase in cash and cash equivalents (1,637.70) 2,598.36

Cash and cash equivalent at the beginning of the Financial year 3,366.83 768.47

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

CASH fLOW STATEMENT

` Lacs

For and on behalf of the Board of Directors

Premilla V Nair Director

Sabu Thomas Financial Controller

P.Joy Oommen Chairman & Managing Director

As per our report of even dateFor Jose & Hemachandran

Chartered AccountantsFirm Reg No: 001360S

Thiruvananthapuram12.06.2013

Krishna Kumar SPartner, M No: 229106

Premnath RavindranathGeneral Manager

37

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2.81

1660

3.90

1699

7.77

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1643

3.98

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2.89

2.76

KANN

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857.

1430

185.

074.

0930

577.

1824

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714.

1528

907.

0120

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234.

34

KASA

RGOD

E15

813.

0620

116.

592.

7313

883.

2616

984.

092.

8813

213.

2014

603.

863.

14

GRAN

D TO

TAL

5160

810

073

7551

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100

4259

910

058

9076

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100

4125

510

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4523

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100

PRO

FORM

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CT W

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tion

Sanc

tion

sinc

e in

cepti

on

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12Du

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2012

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Till

31-0

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13

No.

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ntN

o.Am

ount

No.

Amou

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ount

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upt

o `

1 la

kh78

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00

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8

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313

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08

`. 1

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603

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72.4

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599

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67

KOLL

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3977

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6126

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7819

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72

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PUZH

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13

KOTT

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2927

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3.2

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36.4

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TRIS

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3379

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4445

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0.47

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23

KASA

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GRAN

D TO

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4259

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9076

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4125

546

4523

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DIST

RICT

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S AN

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31-

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013

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43

KF

C A

nn

uA

l R

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THER

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ount

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Min

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2821

3.78

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.32

3423

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2Cr

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3Pe

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13.3

70.

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ther

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67.3

632

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88

6Te

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61.8

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012

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81

7Pa

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95.4

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3

8Le

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cts

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7

9Ru

bber

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4120

45.6

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563.

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10Ch

emic

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nd C

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s77

47.7

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492

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00

12Ce

men

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20

13Ba

sic M

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27.3

120

80.8

559

08.1

6

b) N

on-F

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1.71

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etal

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duct

s57

30.7

050

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15Ca

pita

l Goo

ds

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on-E

lect

rical

Mac

hine

ry15

99.7

679

0.04

2389

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b) E

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Mac

hine

ry24

85.0

315

42.6

140

27.6

4

c) E

lect

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c M

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nery

0.00

0.00

0.00

d)Tr

ansp

ort E

quip

men

t15

44.6

296

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1641

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16El

ectr

icity

Gen

erati

on10

9.75

4.29

114.

04

17Se

rvic

es

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otel

s & S

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ing

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plex

1960

9.58

2266

92.2

024

6301

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b) H

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2105

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2435

2.76

2645

8.70

c) O

ther

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8246

857.

4958

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31

18O

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5451

535.

8611

1009

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TOTA

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2319

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3767

56.9

558

9076

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INDu

STRy

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E CL

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2Cr

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9.73

3Pe

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7Pa

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45.1

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9526

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54

10Ch

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1

11Fe

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00

12Ce

men

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7

13Ba

sic M

etal

s:

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el28

73.4

646

3.17

3336

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on-F

erro

us59

0.08

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14M

etal

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duct

s39

27.4

319

8.40

4125

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15Ca

pita

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on-E

lect

rical

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87.5

167

4.65

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b) E

lect

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spor

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ipm

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1073

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31.3

411

04.9

2

16El

ectr

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Gen

erati

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4

17Se

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es

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1296

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1131

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5615

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4977

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82.9

529

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.41

4645

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6

INDu

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120

11-1

220

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3

12

34

56

78

910

Appl

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ecei

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598

468

406

541

567

619

855

702

694

721

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789

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2240

628

246

4365

879

947

5969

964

294

7727

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Appl

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No

581

387

368

461

526

580

759

742

634

639

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Am

ount

1695

810

981

1211

313

583

2455

734

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6159

350

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5390

166

139

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men

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1190

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4878

5297

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2939

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4434

446

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4759

2

Reco

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ount

2728

424

468

2141

319

908

2184

426

925

2995

435

473

4671

754

022

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mou

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385

5963

869

561

7525

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244

7741

4751

4352

2788

3241

Num

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f loa

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coun

ts15

197

1189

611

586

1034

577

9763

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4960

4959

8561

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Bala

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1130

71**

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6910

6279

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839

1124

8112

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Auth

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000

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2000

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999

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1978

319

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574

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361

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1570

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721

197

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7

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8762

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7111

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3338

2930

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3776

4217

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2774

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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: kfc@kfc.org 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 .................................

Notes

1. 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

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