International Journal of Research in Social Sciences Vol. 9 Issue 1, January 2019,
ISSN: 2249-2496 Impact Factor: 7.081 Journal Homepage: http://www.ijmra.us, Email: [email protected] Double-Blind Peer Reviewed Refereed Open Access International Journal - Included in the International Serial Directories Indexed & Listed at: Ulrich's Periodicals Directory ©, U.S.A., Open J-Gage as well as in Cabell’s Directories of Publishing Opportunities, U.S.A
903 International Journal of Research in Social Sciences http://www.ijmra.us, Email: [email protected]
An Overview on Operational Performance of Karnataka State
Financial Corporation
CHETHANA. B*
Abstract
Karnataka State Financial Corporation (KSFC) is a State level financial institution
established by the Karnataka State Government in the year 1959 under the State Financial
Corporations Act 1951 to meet the financial needs of Micro, Small and Medium Enterprises
(MSMEs) in the State of Karnataka. As a pioneering and responsive financial institution, KSFC
is fine-tuned to fulfill the plans and aspirations of entrepreneurs by extending all possible
assistance. In the 55 years of its existence, KSFC has contributed most significantly for the
growth of SMEs, backward area development and promotion of first generation entrepreneurs.
With this background the present study made an attempt to provide clear picture of the
operational performance of KSFC. In this paper, the study intends to examine the Operational
Efficiency Ratio of KSFC, the flow of assistance in terms of sanctions and disbursements, flow
of credit to micro and small scale sector, sector wise disbursement of loans by KSFC, Recovery
performance of the KSFC and district wise disbursement performance of KSFC. The study has
used Multiple Regression Analysis to analyze the determinants of Operational Efficiency Ratio
and the results have some policy implications.
Key Words: Operational Efficiency Ratio, NPA, Sanctions & Disbursements, Micro and
Small scale Industries.
JEL Classification: G32, G33
* Assistant Professor of Economics, Govt. First Grade College, Saligrama, KR Nagar Taluk,
Mysuru District. Karnataka State, India – 571604.
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1. INTRODUCTION
The economic development of any country depends on the extent to which its financial
system efficiently and effectively mobilizes and allocates resources. There are a number of banks
and financial institutions that perform this function; one of them is the development bank. State
Financial Corporations are the state level development banks for the development of small and
medium scale industries in India. They aim at bringing about balanced regional development by
wider dispersal of industries, promoting greater investment and generating larger employment
opportunities. However the development of industries has not been upto the expectation level
due to inefficiency in their operations. In this way the present study made an attempt to deals
with the operational performance of KSFC.
2. REVIEW OF LITERATURE
AnilKumar.B.Kote (2012), in his study on “An Empirical Investigation of Karnataka State
Financial Corporation and Industrial Development in Gulbarga District of Karnataka State”
analyzes the performance of Karnataka State Financial Corporation (KSFC) in giving financial
assistance to Small-Scale Industries (SSI) in Gulbarga district. The study discussed about the
financing pattern of SSI sector by KSFC, covering year-wise, type-wise, industry-wise,
constitution-wise, and size-wise and district-wise credit sanctions and disbursements in
Karnataka.
Srinivas K T (2013), in his study on “The Role of KSFC in Promotion of Enterprises and
Employment Generation in Karnataka” has made an attempt to addresses on role of Karnataka
State Financial Corporation (KSFC) in promotion of enterprises and employment generation for
economic development.
Viswanatha Reddy. C (2013) in his paper on “Operational and Financial Performance of Andhra
Pradesh State Financial Corporation (APSFC): An Overview” has made an attempt to examine
the overall operational and financial performance of the Corporation for industrial development
in Andhra Pradesh.
3. OBJECTIVES
1. To examine the trend and growth pattern of KSFC.
2. To measure operational efficiency of KSFC and to estimate its determinants.
3. To analyse the District wise and sector wise disbursement of loans by the KSFC.
4. To study the amount disbursed and sanctioned to the micro and small scale sector.
4. HYPOTHESES
1. There is a significant variation between sanctions and disbursements over the study period.
2. There is a significant variation between gross sanctions and sanctions made to the small scale
sector.
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3. There is a significant difference in the disbursed amount among various sectors over the
study period.
4. The level of OER is significantly influenced by the variables net profit, NPA, total income
and noninterest expenditure.
5. METHODOLOGY
This study makes use of the secondary data, which consisted of the annual reports of
KSFC (Karnataka State Financial Corporation) for the period of 21 years, i.e. from 1992-93 to
2012-13. The data collected for the research are analyzed logically and meaningfully with the
help of simple statistical techniques such as percentage, ratios, averages and graphs to arrive at
meaningful conclusions.
The statistical tools applied for data analysis are Mean, Standard Deviation, Co- efficient
of Variation, Simple Growth Rate, Compound Annual Growth Rate, Operational Efficiency
Ratio, Correlation, T-test, ANOVA, ADF test and Regression.
In this study the regression model is used to estimate the determinants of OER (Operational
Efficiency Ratio). The independent variables used are net profit, NPA, total income and
noninterest expenditure. For this the regression model will be:
OER=𝛽0 +𝛽1 x1 +𝛽2 x2 +𝛽3 x3 +𝛽4 x4 +U, Where
𝛽0= intercept
𝛽1, 𝛽2, 𝛽3, 𝛽4 } Slope Coefficients to be estimate
x1= Net Profit
X2= Non Performing Assets
X3= Total Revenue
X4= Noninterest Expenditure
U= stochastic error term, which has assumed to be iid variable.
Table 1: The expected influence of independent variables on OER
6. Limitation of the study The present study is confined to Karnataka state financial corporation only and study is
restricted for the period of 21 years i.e., from 1992-93 to 2012-2013. The data is analyzed and
interpreted to achieve the above said objectives based on information gathered during the above
mentioned period from the annual reports of KSFC and it doesn‟t indicate the current situation of
KSFC.
Sl.no Variables Description Expected sign
1 OER Lower value is favorable -
2 Net Profit As the net profit increases OER decreases Negative
3 NPA As the NPA increases OER increases Positive
4 Total Revenue As the Total Revenue increases OER decreases Negative
5 Noninterest
Expenditures
As the noninterest expenditure increases OER
increases
Positive
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7. RESULTS AND DISCUSSION Descriptive statistics is the discipline of quantitatively describing the main features of a
collection of information. The following table discusses about descriptive statistics of some of
the selected variables of KSFC.
Table 2: Descriptive Statistics of Selected Variables
Sl. No Variables N Minimum Maximum Mean Std.
Deviation C. V
1 Sanctioned numbers 21 1161 15233 4924.20000 5421.45 110.0981
2 Sanctioned amount 21 242.87 944.06 505.42000 215.3264 42.60346
3 disbursement 21 199.86 734.7 397.79000 152.971 38.45522
4 recovery 21 239.41 792.89 543.30000 125.2312 23.0501
5 NPA gross amount 18 319.32 1197.24 679.78000 330.8547 48.67085
7 Loan outstanding 21 930.03 1940.05 1557.10000 296.1591 19.01991
8 NPA provision 21 0 386.32 237.80000 138.3092 58.162
9 NPA gross percentage 18 17.08 66.79 41.49610 18.66481 44.97967
10 NPA net amount 18 14.66 855.68 406.17000 302.4783 74.47086
11 NPA net percentage 18 2.37 57.63 29.74610 20.61873 69.31574
Source: Calculated from the Annual reports of KSFC
The Table 2 shows that the descriptive statistics of selected variables of KSFC. As the
table represents sanctioned number of applications has the mean value of 4924.20 numbers with
a standard deviation value of 5421.45 for the 21 years. It means that since the standard deviation
value is very large compare to mean value of sanctioned number of applications, there is a very
huge variation in the number of applications sanctioned over a period of time. Further the
sanctioned amount mean value is 505.42 crores rupees with the standard deviation of 215.32. In
addition recovery has the mean value of 543.30 crores of rupees with the standard deviation of
125.23. NPA gross amount‟s mean value is 679.78 crores of rupees and it has the standard
deviation value of 330.85. Recovery and NPA also have the variation in the study period; it
means that the recovery performance of the KSFC was not consistent in the study period.
Table 3: Estimated CAGR of Selected Variables
Sl.No. Variables 1992-93 - 2001-02 2002-03 - 2012-13
1 Sanctioned numbers -0.234127008 0.023016472
2 Sanctioned amount -0.026609776 0.136206853
3 Disbursement -0.02152573 0.124928756
4 Recovery 0.092432803 0.027825726
5 NPA gross amount 0.279306694 -0.138110529
Source: Calculated from the Annual reports of KSFC
The table 3 reveals that the CAGR of the selected variables. The CAGR value of total
sanctioned numbers of application of KSFC for ten years is -0.234, it means that in the period of
1992-93 to 2001-02 it has negative growth by 23%. But it has a positive growth of 2% in the
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next decade. The sanctioned amount and the disbursed amount have negative growth by 2%
during first decade (1992-93 - 2001-02), whereas second period (2002-03 – 2012-13), they have
positive growth by 13% and 12% respectively. The recovery performance reduced to 2% positive
growth in the second decade compare to 9% positive growth in the first decade. Since the KSFC
has started follow strict rules while getting back the loan, the amount of NPA has negative
growth in the period of 2002-03 – 2012-13.
Operational Efficiency Ratio
The efficiency ratio is the traditional measure for bank productivity. At its simplest, it is
the cost required to generate each rupees of revenue. Measure of relationship between income
and expenses a way of measuring the proportion of revenue on expenses. Often identified with
banking and financial sectors, the efficiency ratio indicates a management's ability to keep
overhead costs low. This measurement is also used by mature industries, such as steel
manufacture, chemicals, or car production, which must focus on tight cost controls to boost
profitability because growth prospects are modest.
Table 4: Operational Efficiency Ratio of KSFC
Sl.No Period OER
1 1992-93 – 2001-02 0.169288(16.9%)
2 2002-03 – 2012-13 0.209981(20.9%)
Source: Calculated from the Annual reports of KSFC
Figure 1: Operational Efficiency Ratio of KSFC
The table 4 and figure 1 shows the operational efficiency ratio of the KSFC for the period
of two decades i.e., 1992-93 – 2001-02 and 2002-03 – 2012-13. As the decade one shows that
the OER is 16.9%, it means that the KSFC spends 0.169 rupees to generate one rupee of revenue
in the decade of 1992-93 – 2001-02. And for the 11 years i.e., 2002-03 – 2012-13, the OER is
20.9%, which means that to make one rupee of revenue the KSFC has to spend 0.209 rupees. As
0
0.05
0.1
0.15
0.2
0.25
1992-2001 2002-2012
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this table tells the efficiency ratio was better in the first decade compare to second decade, it is
because that the non interest expenses was high in second decade compare to first decade or the
revenue was high in first decade than second decade.
Table 5: Year Wise Operational Efficiency Ratio of KSFC
Year OER Year OER
1992-93 0.147578 2002-03 0.226151
1993-94 0.138382 2003-04 0.161037
1994-95 0.146417 2004-05 0.168523
1995-96 0.147129 2005-06 0.169109
1996-97 0.151222 2006-07 0.194625
1997-98 0.140343 2007-08 0.165228
1998-99 0.17493 2008-09 0.225305
1999-00 0.196871 2009-10 0.250036
2000-01 0.229652 2010-11 0.245333
2001-02 0.197611 2011-12 0.250139
- - 2012-13 0.247908
Source: Calculated from the Annual reports of KSFC
Figure 2: Year Wise Operational Efficiency Ratio of KSFC
As the above table 5 and figure 2 reveals that the OER is slightly increasing during the
study period, with little fluctuations. From the year 1992-93 to 1997-98 there is no much
difference in OER, it fluctuates between 14% and 15%. It implies that the non interest expenses
and revenue of KSFC didn‟t much fluctuate in that time period. In the year of 1998-99 the OER
increased by 3% i.e., reached to 0.1749. Because in that time period cost increased or revenue
went down. The highest OER is 0.2501 in the period of 2011-12, due to lower revenue or higher
cost. It implies that to make one rupees of revenue the KSFC has to spend 0.25 rupees. Finally in
the year 2012-13 KSFC was spending 0.24 rupees to make one rupee of revenue, but in the
period of 1992-93 it was only 0.14 rupees. Even though the OER of KSFC is high in recent years
compare to 1990s, it is due to because of increase in the non interest expenses such as employee
cost, administrative expenditure, depreciation expenditure etc.
0
0.05
0.1
0.15
0.2
0.25
0.3
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Operational Performance of the KSFC
The present section aims to analyse and evaluate the performance of KSFC in term of its
assistance to the industrial units in Karnataka by selecting the following parameters:
Flow of assistance in terms of sanctions and disbursements.
Flow of credit to micro and small scale sector.
Recovery performance of the KSFC.
Sector wise disbursement of loans by KSFC.
District wise disbursement performance of KSFC.
Table 6: Flow of assistance in terms of sanctions and disbursements (Rs in Crore)
Year Sanction AGR % Disbursement AGR % Disbursement as %
of Sanction
1992-93 342.06 - 299.81 - 87.64837
1993-94 354.77 3.715722 310.01 3.402155 87.38338
1994-95 520.18 46.62457 432.09 39.37937 83.06548
1995-96 818.81 57.40897 612.63 41.78296 74.81956
1996-97 859.84 5.01093 649.46 6.011785 75.53266
1997-98 577.36 -32.8526 469.56 -27.6999 81.32881
1998-99 371.96 -35.5757 358.97 -23.5518 96.50769
1999-00 340.26 -8.52242 298.49 -16.8482 87.72409
2000-01 440.05 29.32757 328.78 10.14774 74.71424
2001-02 303.71 -30.9828 292.42 -11.0591 96.28264
2002-03 340.67 12.1695 268.28 -8.25525 78.7507
2003-04 302.77 -11.1251 248.79 -7.2648 82.17129
2004-05 242.87 -19.784 240.34 -3.39644 98.95829
2005-06 316.2 30.19311 199.86 -16.8428 63.20683
2006-07 424.53 34.25996 310.39 55.30371 73.1138
2007-08 368.15 -13.2806 303.13 -2.33899 82.33872
2008-09 565.24 53.53524 383.92 26.65193 67.92159
2009-10 631.49 11.72069 434.39 13.14597 68.7881
2010-11 731.62 15.85615 580.4 33.61265 79.3308
2011-12 817.32 11.71373 597.08 2.87388 73.05339
2012-13 944.06 15.50678 734.7 23.04884 77.82344
CAGR 0.052
0.045
Correlation Co-efficient = 0.978, Sig = 0.000
Source: Calculated and compiled from the Annual reports of KSFC
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Figure 3: Flow of assistance in terms of sanctions and disbursements
The table 6 and figure 3 showed that, the amount of sanctions increased from 342.06
crores of rupees in 1992-93 to 944.06 crores of rupees in 2012-13. The CAGR value for total
sanctioned amount is 0.052; it means that the sanction amount has positive growth by 5% over
the 21 years of the study period. Similarly the disbursed amount increased from 299.81 crores of
rupees in 1992-93 to 734.7 crores of rupees in 2012-13. The disbursed amount‟s CAGR value
has positive growth of 4% over the study period. The correlation coefficient between sanctions
and disbursements over the study period is 0.978, which means that there is a very close positive
linear relationship between sanctions and disbursement. The correlation result is also significant
at 1% level of significance. The AGR value of sanctions was increased from 3.7% in 1992-93 to
15.5% in 2012-13, with the negative growth in the middle of the study period. Same trend
followed by the disbursed amount as its AGR values shown.
Table 7: Result of ‘t’ test to show difference between Sanction & Disbursement
Independent Samples Test
Description
Levene's Test for
Equality of Variances t-test for Equality of Means
F Sig. t df Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
amount
Equal
variances
assumed
3.679 .062 1.867 40 .069 107.63905 57.63828
Equal
variances not
assumed
1.867 36.089 .070 107.63905 57.63828
The table 7 shows that the results of the „Independent sample t‟ test to show the
difference between sanction and disbursement. The calculated value of „t‟ is 1.867. The result is
not significant at 5% level of significance. But the result is significant at 10% level of
significance, which implied that the difference is marginally significant.
0100200300400500600700800900
1000
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20
12
-13
San Amo
Dis Amo
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Table 8: Flow of Credit to the Micro & Small Scale (M&S) Sector (Rs in Crore)
Year Gross Sanction
Sanction to
M&S M&S as % of
Gross Sanction
2006-07 424.53 173.97 40.97944
2007-08 368.15 162.7 44.19394
2008-09 565.24 255.83 45.26042
2009-10 631.49 272.8 43.19942
2010-11 731.62 533.3 72.89303
2011-12 817.32 513.03 62.76978
2012-13 944.06 574.68 60.87325
Mean 640.34 355.18
Std Dev 207.47 178.58
Source: Calculated and compiled from the Annual reports of KSFC
As the table 8 depicted the amount of sanctions to the micro and small scale industries
increased from 173.97 crores of rupees in 2006-07 to 574.68 crores of rupees in 2012-13. The
mean sanction to this sector over the study period was 355.18 crores of rupees, with the standard
deviation value of 178.58 crores of rupees. The percentage of sanctions to the micro and small
scale industries in relation to gross sanctions was very high in the period of 2010-11. The
percentage share of sanctions made to micro and small scale industries exceeds more than 50%
in the gross sanction only after the period of 2009-10.
Table 9: The result of ‘t’ test to show difference between Gross sanctions and sanctions
made to Micro and small scale sector
Independent Samples Test
Description
Levene's Test for
Equality of
Variances
t-test for Equality of Means
F Sig. t df Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence Interval of
the Difference
Lower Upper
amount
Equal variances
assumed .011 .919 2.756 12 .017 285.15714 103.46906 59.71742 510.59687
Equal variances
not assumed
2.756 11.740 .018 285.15714 103.46906 59.16246 511.15183
The table 9 indicates that, the result of the „independent sample t‟ test between gross
sanctions and sanctions made to micro and small scale industries. The calculated value of „t‟ is
2.756. The result is significant at 5% level of significance. Thus, it is found that there is a
significant difference between gross sanctions and sanctions given to the micro and small scale
sector.
Table 10: Recovery Performance of the KSFC (Rs in crore)
Year Recovery AGR% Year Recovery AGR%
1992-93 239.41 - 2002-03 495.22 -4.85687
1993-94 302.96 26.54442 2003-04 562.43 13.57175
1994-95 374.83 23.7226 2004-05 582.12 3.50088
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1995-96 495.33 32.14791 2005-06 555.06 -4.64853
1996-97 611.84 23.52169 2006-07 502.75 -9.42421
1997-98 665.47 8.765363 2007-08 561.14 11.61412
1998-99 671.81 0.95271 2008-09 501.22 -10.6783
1999-00 642.3 -4.39261 2009-10 554.94 10.71785
2000-01 529.36 -17.5837 2010-11 586.71 5.724943
2001-02 520.5 -1.67372 2011-12 660.93 12.6502
- - - 2012-13 792.89 19.96581
CAGR 0.0617
Source: Calculated and compiled from the Annual reports of KSFC
Figure 4: Recovery performance of the KSFC
As the above table 10 and figure 4 revealed that, the total recovery grew to 792.89 crores
of rupees in 2012-13 from 239.41crores of rupees in 1992-93, registering a CAGR of 6.1%. It
means that the recovery performance of the KSFC has positive growth rate by 6.1% over the 21
years of the study period. As the AGR shows even though the recovery performance had
negative growth in the middle of the study period, but at the end it has significantly increasing
growth rate.
Sector wise and district wise disbursement of loans by KSFC
Even though the KSFC is established for the development of micro and small scale
industries in the Karnataka state, it is providing loan not only for the development of small
industries but also for some development activities. The data relating to the sector wise
disbursement of loans by KSFC is provided in the table 11.
0
100
200
300
400
500
600
700
800
900
Recovery
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Table 11: Sector Wise Sanctions and Disbursement of Loans by KSFC (in lakh)
Sanctions Disbursement
year SRTO's* Mi&Sm Micro others *SRTO's Mi&Sm Micro others
2006-07 75.36 17397.85 10828.67 24089.46 66.58 14643.79 9399.72 16328.93
2007-08 172.85 16270.67 9884.57 18904.25 154.87 16572.84 9791.43 13584.91
2008-09 192.7 25583.13 12590.47 28936.26 166.74 17809.68 7454.44 20415.13
2009-10 573.54 27280.55 14822.67 30452.83 420.65 21960.1 11643.47 21057.77
2010-11 511.92 53330.11 23336.45 13746.15 489.16 43880.66 23999.93 13670.82
2011-12 605.79 51303.38 8057.66 24866.5 507.45 40182.76 7113.28 19017.63
2012-13 1142 57468.71 7637.63 28532.8 988.92 51027.27 7852.75 21454.25
Source: Compiled from the Annual reports of KSFC, *Small Road Transport Operators
Note: Mi&Sm= Micro and Small Scale Sector
Figure 5: Sector Wise Disbursements of Loans by KSFC
Sector wise sanctioned amount and disbursed amount by the KSFC is reported in table 11
and shown in figure 5. The disbursed amount is less than sanctioned amount in all the years and
in all the sectors. Among the sectors the share of micro and small scale industries is very high.
The result of ANOVA test to show the difference of disbursed amount among sectors has shown
in the table 12.
Table 12: ANOVA test Result
Amount Sum of Squares df Mean Square F Sig.
Between Groups 312.99 3 104.09 15.158 .000
Within Groups 164.69 24 686.07
Total 476.69 27
The above table 12 shows the result of ANOVA to show the difference of disbursed
amount among sectors by the KSFC. The estimated F value is 15.158. The result is statistically
significant at 1% level of significance. It means that there is a significant difference in the
amount disbursed by the KSFC among different activities.
0
10000
20000
30000
40000
50000
60000
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
SRTO's
Mi&Sm
MicroDisbursement
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Table 13: Results of Post Hoc test (LSD Multiple Comparisons) Amount
(I)
group (J) group
Mean
Difference (I-J) Std. Error Sig.
95% Confidence Interval
Lower Bound Upper Bound
SRTO Mi&Sm -29040.4* 4.42719E3 .000 -38177.6590 -19903.1210
Micro -10637.2* 4.42719E3 .024 -19774.5047 -1499.9667
Others -17533.6* 4.42719E3 .001 -26670.8505 -8396.3124
Mi&Sm SRTO 29040.39000* 4.42719E3 .000 19903.1210 38177.6590
micro 18403.15429* 4.42719E3 .000 9265.8853 27540.4233
others 11506.80857* 4.42719E3 .016 2369.5395 20644.0776
micro SRTO 10637.23571* 4.42719E3 .024 1499.9667 19774.5047
Mi&Sm -18403.2* 4.42719E3 .000 -27540.4233 -9265.8853
others -6896.34571 4.42719E3 .132 -16033.6147 2240.9233
others SRTO 17533.58143* 4.42719E3 .001 8396.3124 26670.8505
Mi&Sm -11506.8* 4.42719E3 .016 -20644.0776 -2369.5395
micro 6896.34571 4.42719E3 .132 -2240.9233 16033.6147
*. The mean difference is significant at the 0.05 level.
The ANOVA test has been conducted to know whether there is a significant difference in
the disbursed amount among the sectors by KSFC. But the ANOVA test itself doesn‟t tell us,
which group is significantly differs from others. Therefore the LSD multiple comparisons test
has been conducted. The results of the LSD multiple comparisons test has shown in the table 13.
As the results shows there is no significant mean difference in the disbursed amount between
micro industries and others, but they have significant difference with remaining two sectors.
Further, there is a significant mean difference for SRTOs disbursement with all other sectors.
Even the disbursed amount to micro sector also has significant mean difference with other
sectors.
Table 14: District Wise Disbursement Performance of KSFC*(In Lakhs)
District Amount District Amount
Bangalore Urban 9971.13 Haveri 1118.17
Bangalore Rural 1026.51 Gadag 1023.61
Ramanagar 1519.6 Koppal 3390.53
Tumkur 2208.31 Karwar 614.5
Kolar 1267.71 Bellary 3367.71
Chickballapur 954.94 Davanagere 1241.91
Mysore 5283.58 Chitradurga 1020.09
Mandya 1847.24 Shimoga 1010.54
Madikeri 1165.66 Gulbarga 1084.72
Chamarajanagar 1210.86 Yadgir 483.28
Mangalore 3360.95 Raichur 1160.56
Udipi 1547.07 Bidar 936.13
Hassan 1690.69 Belgaum 2164.98
Chickmagalur 352.18 Bijapur 1843.44
Hubli 3219.29 Bagalkot 2409.69
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*From April 1st 2013 to 28
th February 2014.
Source: Compiled from the Annual reports of KSFC
Figure 6: District wise disbursement performance of KSFC
The above table 14 and figure 6 revealed that the district wise disbursement of funds by
KSFC from April 1st 2013 to 28
th February 2014. Among all districts in Karnataka Bangalore
urban got highest (9971.13 lakhs) amount and the amount disbursed to Yadgir is lowest (483.28
lakhs) by the KSFC. Since the Bangalore is capital of Karnataka state most of the small and
medium industries are located in the Bangalore urban district. Hence large percentage of
disbursed amount goes to it. Among the districts of North Karnataka Koppal and Bellary only
gets more than 3000 lakh of amount by the KSFC.
Determinants of Operational Efficiency Ratio
In this part the present study is going to estimate a Regression function for the OER.
Before going to the regression analysis, the ADF test results have been discussed in this part.
Because while using time series data we should check out the stationarity of a variable, instead
of directly go to the regression estimation. The statistical implication for the presence of unit root
(non stationary) is that it could lead to estimation of spurious relationship. So the results of ADF
test which is used to test the stationarity of a variables shows as follows. Table 15 presents the
results of the unit root test.
0
2000
4000
6000
8000
10000
12000
BA
NG
ALO
RE
UR
BA
N
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NG
ALO
RE
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NA
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AR
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NA
GA
R
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ITR
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BID
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T
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Table 15: Results of Unit Root Test
Note: ** represent the rejection of the null hypothesis of unit root at the 1% level of significance.
The table 15 shows that at the level (drift) NPA was stationary at 1% level of significance
with the remaining variables being nonstationary. The variables were then tested again by adding
trend, at the first difference and second difference. At the first difference without trend,
operational efficiency, net profit and total income were found to be stationary. The remaining
variable noninterest expenditure was found to be stationary at second difference without trend.
Now, since the unit root problem has removed and converted the data into stationary by
differencing, we can proceed to present the results of the regression.
Table 16: Regression results of determinants of Operational Efficiency Ratio of KSFC
Dependent Variable: Operational Efficiency Ratio
Variable Coefficient Std. Error t-Statistic Prob.
dNETPROFIT -0.0000401 0.0000474 -0.845351 0.4145
NPA -0.000012 0.0000133 -0.902876 0.3844
dTOTALINCOME -0.000784 0.0000657 -11.94254 0.0000
dNONINTERESTEXPT 0.003729 0.000347 10.74900 0.0000
C 0.000384 0.001681 0.228333 0.8232
R-squared 0.966044 Prob (F-statistic) 0.000000
Adjusted R-squared 0.954725 Durbin-Watson stat 2.013500
F-statistic 85.34894
The table 16 shows that the regression results of determinants of Operational Efficiency
Ratio of KSFC. Lower the value of OER higher the efficiency. As the above regression model
shows there is a negative relationship between net profit and the OER. If net profit increased by
one point, it leads to negative changes by 0.0000401points in the OER, but this is not significant.
At level First Difference Second Difference
variable drift drift&
trend none drift
drift&
trend none drift
drift&
trend
Operational
efficiency -1.65 -2.366 0.508 -5.427**
Net
profit -1.68 -2.367 -1.54 -4.282**
NPA -5.034**
Total
income -2.10 -2.156 0.113 -5.038**
Noninterest
expenditure -1.72 -2.148 1.37 -1.539 -1.838 -1.44 -8.56**
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Similarly, the result shows that the negative relationship between NPA and OER. But this
relationship is not according to expectation. Since the coefficient value of NPA is very low and
due to insignificant results this might be negligible by the researcher. Further, total income has
the negative relationship with OER. As the results shows, if one unit increases in the total
revenue it leads to negative changes by 0.000784 points in the OER. The result is also significant
at 1% level of significance. And the relationship between non-interest expenditure and OER is
positive. As the coefficient value indicates, if one unit increase in the non-interest expenditure it
leads to positive changes by 0.003729 points in the OER. The result is also significant at 1%
level of significance.
The adjusted R square is 0.95; it means that 95% of the variation in the dependent
variable (OER) is explained by the independent variables specified in the Regression Model.
8. Findings of the Study
The gross sanctioned amount registered a growth from 342.06 crores of rupees in 1992-
93 to 944.06 crores of rupees in 2012-13.
The total recoveries in the year 2012-13 stood at 792.89 crores of rupees as against
239.41 crores of rupees in 1992-93, registering a CAGR of 6.1%.
The KSFC spends 0.169 rupees to generate one rupee of revenue in the decade of 1992-
93 – 2001-02. And in the 11 years i.e., 2002-03 – 2012-13, to make one rupee of revenue
the KSFC has to spend 0.209 rupees.
The Operational Efficiency Ratio of KSFC is high in recent years compare to 1990s, it is
due to increase in the non interest expenses such as employee cost, administrative
expenditure, depreciation expenditure etc.
The independent samples t test result shows there is no significant difference between
sanctions and disbursements made by KSFC.
The percentage share of sanctions made to micro and small scale industries exceeds more
than 50% in the gross sanction only after the period of 2009-10. And as the independent
samples t test results shows that there is a significant difference between gross sanctions
and sanctions given to the micro and small scale sector.
The share of micro and small scale industries is very high in the sector wise disbursement
of loan by the KSFC among others.
The ANOVA test results show that there is a significant difference in the amount
disbursed by the KSFC among different activities.
Total income and noninterest expenditure have significant influence on the OER with the
expected relationship. Even though net profit has expected relationship with OER, the
result is not significant at 5% level of significance.
9. Conclusion and Policy Suggestions
The KSFC is one of the leading financial institutions in the country acting as a catalyst
for industrial growth in Karnataka. The main objective of the study is to analyze the operational
performance of Karnataka State Financial Corporation.
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KSFC has failed in its objective of balanced development, as most of the sanctions have
been made only to a few districts of Karnataka and a small share of the total amount sanctioned
has gone to the backward districts. Hence regional considerations should be taken care while
disbursing and sanctioning the loans to achieve regional balance. The KSFC has to take proper
measures to control NPA, still some more vibrant measures should take, so that NPA of the
corporation can completely eliminated. The OER of KSFC was very high at the end of the study
period. Since the low OER is favorable, the KSFC should concentrate in the reduction of
noninterest expenditure and increase in the income, which will result in favorable OER.
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