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CHAPTER 1
INTRODUCTION
1.1
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
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of banks and financial institutions that perform this function; one of them is the
development bank Development banks are unique financial institutions that perform the
special task of fostering the development of a nation, generally not undertaken by other
banks.
Development Banks are financial agencies that provide medium and long-term financial
assistance and act as catalytic agents in promoting balanced development of the country.
They are engaged in promotion and development of industry, agriculture, and other key
sectors. They also provide development services that can aid in the accelerated growth of
an economy.
The objectives of development banks are as follows:
1) To serve as an agent of development in various sectors, such as industry, agriculture,
and institutional trade.
2) To accelerate the growth of the economy.
3) To allocate resources to high priority areas.
4) To foster rapid industrialization, particularly in private sector, so as to provide
employment opportunities as well as higher production.
5) To develop entrepreneurial skills.
6) To promote the development of rural areas.
7) To finance housing, small scale industries, infrastructure, and social utilities.
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The need for development financial institutions was felt strongly immediately after India
attained independence. The country was in need of a strong capital goods sector to
accelerate the pace of industrialization. The existing industries were in need of long-term
funds for their reconstruction, modernisation, expansion, and diversification programmes
while the new industries required enormous investments for setting up gigantic projects
in the capital goods sector. However, there were gaps in the banking system and capital
markets which needed to be filled to meet this enormous requirements of funds.
To fill these gaps, a new institutional machinery was devised the setting up of special
financial institutions, which would provide the necessary financial resources and knowhow so as to foster the industrial growth of the country.
The first step towards building up a structure of development financial institutions was
taken in 1948 by establishing the Industrial Financial Corporation of India (IFCI) Ltd.
This institution was set up by an Act of Parliament with view to providing medium and
long-term credit to units in the corporate sector and industrial concerns.
In view of the immensity of the task and size of the country, it was not possible for a
single institution to cater to the financial needs of small industries spread in different
states. Hence, the necessity for setting up regional banks to cater to the needs of small
and medium enterprises was recognized. Accordingly, the State Financial Corporations
Act was passed in 1951 for setting up State Financial Corporations (SFCs) in different
states. By 1955-56, 12 SFCs were set up and by 1967-68, all the 18 SFCs now in
operation came into existence. SFCs extend financial assistance to small enterprises.
Beginning with establishment of the industrial finance corporation of India, with effect
from July 1, 1948, India has traversed a great deal in the sphere of development banking.
In fact, it would not be wrong to say that in the field of development banking. In fact, it
would not be wrong to say that in the field of development banking, India is fairly
advanced country, with a capacity for providing technical assistance to the less developed
countries in establishing and running development banks.
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industrial financial institutions in the various states was revived at the time of
establishment of the IFCI. State Financial Corporations (SFCs) set up in various states as
regional institutes represent an attempt to diversify the structure of development banking
in India so as to be able to cope up with the requirements of wider sections of industrial
enterprise.
At present, there are 18 SFCs in the country. The states of Manipur, Meghalaya,
Mizoram, Nagaland, Goa, Sikkim, Tripura, Uttarakhand, Chhattisgarh, Jharkhand, and
the Union Territories except Delhi have yet to have their own SFC. The area of operations
of a SFC is normally confined to one State/Union Territory, but, they can be extended to
other States/Union Territories which do not have SFC of their own. The Assam SFC
operates also in Manipur and Tripura. Chandigarh is served by SFC of Delhi, while Goa,
Daman and Dieu by Maharashtra, Dadra and Nagar Haveli by Gujarat and Pondichery by
Tamil Nadu SFC.
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In September 1949, the Central Government issued a circular letter to all the State
Governments and after incorporating their views in regard to the shape and structure of
the proposed corporations, the Government introduced the State Financial Corporations
Bill in the Parliament. The Bill was presented by Sh. C.D. Deshmukh, Minister of
Finance on December 13, 1950 which was finally passed on September 28, 1951 and the
State Financial Corporations Act came into force from August 1, 1952. This Act
empowered the State Governments to establish financial corporations in their respective
States. Provision was also made to bring within the scope of this Act, any institution
already in existence, and concerned with the financing of industry. This was done at the
instance of Tamil Nadu Government which wanted to bring within the scope of this Act,
the Tamil Nadu Industrial Investment Corporation Ltd.
The first State Financial Corporation set up under the Act was the Punjab
Corporation which was established in Feb. 1953. Gradually, similar
Corporations were established in different States. In Karnataka, the State
Corporation was set up on March 30, 1959. At present, there are 18 State
Corporations functioning in different States and Union Territories.
Financial
Financial
Financial
Financial
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SFCs also act as the agent of the Central and State Governments, IDBI, IFCI, or any
other financial institutions in matters concerned with the grant of loans or advances or
subscription to debentures. Most of the IDBI schemes for assistance to small and medium
sectors are operated through SFCs.
1.2.4 Financial Resources of State Financial Corporations
Initially, the Authorized Share Capital of a State Financial Corporation was required to be
fixed by the concerned State Government within the limit of Rs.2 crore. But, subsequent
Amendments authorized the SFCs to raise their Authorized Share Capital.
The share capital of the State Financial Corporation is subscribed by the respective State
Governments, the Reserve Bank of India, Scheduled Commercial Banks, Co-operative
Banks, Insurance Companies, Financial Institutions and private parties. In this
connection, it may be noted that the maximum allotment to private parties cannot exceed
25% of the share capital of each corporation.
Besides, share capital, the financial resources of State Financial Corporations comprise:
1)
2)
3)
4)
5)
6)
7)
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disbursed during the year. Such was the humble beginning of the operations of the
Corporation.
The financial results too were also miniscule. In its first year, the Corporations earnings
aggregated to Rs. 3.33 lakhs of which only Rs. 4,037 was income from loans and
advances to industrial units. The expenses of the Corporation for the year amounted to
Rs. 88,275. Thus, the Corporation made a net profit of Rs. 2,44,775 in the first year of its
operation. Such is the story of the Corporations modest beginning.
Today, the Corporation has grown in leaps and bounds and has touched the operations of
almost all the MSMEs in the State in some way or the other. Since inception, the
Corporation has sanctioned over Rs. 10,464 crore to as many as 1,60,000 MSMEs in the
State of Karnataka. Its operations grew many folds in the 80s and the 90s and for nearly
two decades, the Corporation enjoyed complete dominance over all other SFCs and other
industrial investment and development corporations in the country.
In the late 90s, the Corporation went through a correction mode. This coincided with the
impact of globalization and liberalization on the MSMEs. Being the prima-dona for the
MSMEs in the State, the Corporation had to take severe economic beating due to the fall
of MSMEs in the State in the post liberalization era. However, with committed support of
the major stakeholders, namely, the Government of Karnataka, and SIDBI, the
Corporation bounced back to good health from the year 2003-04.
The Corporation, has so far, assisted small scale units, SC/ST beneficiaries, minority and
backward class, women entrepreneurs and industries in backward areas. The contribution
of KSFC for the overall industrial development in the state of Karnataka is quite
significant not only in terms of amount of assistance, but also in the development of
backward areas and weaker sections of the society.
In the year 2009, KSFC completed its 50th year of its formation and celebrated Golden
Jubilee of the Corporation. The journey of 50 years of the Corporation was a memorable
and successful one characterized by ups and downs.
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Vision Statement
To be a premier financial institution in the country, by providing effective and
efficient services to all sectors of people under one roof. Its vision is all for one & one
for all.
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industrial concern or relating to the business of the IDBI, SIDBI, IFCI or any other
financial institutions.
7) It subscribes to, purchases, the stock, shares, bonds or debentures of an industrial
concern.
8) It retains as part of its assets, any stock, shares, bonds or debentures, which it may
acquire by subscription or in fulfillment of its underwriting liabilities and it disposes
of the stock shares, bonds, or debentures so acquired.
9) It accepts or discounts promissory notes and bills of exchange drawn or endorsed by
industrial concerns or any person selling capital goods.
10)It undertakes research and surveys dealing with marketing or investment activities
and undertakes techno-economic studies or other activities in connection with the
development of any industry.
11) It provides technical and administrative assistance to an industrial concern.
12)It acts as the trustee for the holders of debenture or other securities.
13)It provides leasing, sub-leasing, hire-purchase and factoring services.
14)It provides export related credit and services.
15)It undertakes money market related activities.
16)It undertakes asset management activity.
17)It promotes, forms, conducts, and assists the companies, subsidiaries, co-operative
societies, trusts, or such other associations of persons as it may deem it fit, in the
promotion, formation, or conduct of companies.
18)It opens or confirms or endorses letter of credit and negotiates or collects bills and
other documents drawn hereunder. It provides consultancy and merchant banking
services.
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corporate loans) and other financial services. KSFCs assistance covers almost all types
of industrial and service sectors.
The SFCs' Act prescribes broadly the types of activities, which are eligible for financial
assistance from the Corporation. The Act also provides for SIDBI to include newer areas
of activities for financial assistance from time to time. This apart, the Corporation has
also evolved its own schemes under broad guidelines of SFCs' Act depending upon
market potential. The activities which are eligible for financial assistance from the
Corporation are grouped into following three broad categories:
1) Activities as listed out in the SFCs' Act;
2) Activities specifically permitted by SIDBI;
3) Activities formulated by the Corporation.
1.3.7.1 Activities as Listed out in the SFCs' Act
The State Financial Corporations (Amendment) Act, 2000, provides the
list of activities which can be covered under the list of industrial
concerns engaged or to be engaged in:
1)
2)
3)
4)
rope-way or by lift);
5) Generation or distribution of electricity or any other form of power;
6) Maintenance, repair, testing or servicing of machinery of any description or vehicles or
motor boats or trailers or tractors or vessels;
7) Assembling, repairing or packing any article with the aid of machinery or power;
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13)
14)
cable communication;
Setting up or development of tourism related facilities including amusement parks,
convention centers, restaurants, travel and transport (including those at airports),
15)
16)
17)
tourist service agencies and guidance and counseling services to the tourists;
Construction;
Development, construction and maintenance of roads;
Providing commercial complex facilities and community centers including
18)
19)
20)
conference halls;
Floriculture;
Tissue culture, fish culture, poultry farming, breeding and hatcheries;
Service industry, such as altering, ornamenting, polishing, finishing, oiling, washing,
cleaning or otherwise treating or adapting any article or substance with a view to its
21)
22)
ready-built
area
for
establishing
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ACTIVITIES / SCHEMES
FOR FINANCIAL
ASSISTANCE
Objective/ Purpose
1.
General Scheme
Assistance To Construction/
2.
Infrastructure Related
Activities
3.
Assistance To Hotels/
Restaurants
4.
Assistance To Tourism
Related Activities
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5.
Assistance To
Doctors/Nursing
Homes/Hospitals/Electro
Medical Equipments
6.
7.
Assistance To
Entertainment Industry
8.
9.
10.
Industrial Units
Units.
Assistance for qualified Professionals, management,
Assistance To Qualified
Professionals
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Assistance to existing Units with good track record for
12.
13.
14.
15.
Acquisition Of Existing
Enterprises
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construction activity, formation of residential layouts. The following are covered under
the scheme:
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Objective: The objective of the scheme is to provide timely and adequate working capital
assistance to micro, small and medium enterprises (MSME) along with term loan for
fixed assets for entrepreneurs setting up new projects by KSFC.
Eligible Borrowers: All new MSMEs engaged in the manufacture or production,
processing or preservation of goods i.e., manufacturing enterprises where the total
venture outlay (including working capital requirements) does not exceed Rs.100.00 lakhs.
1.3.8.9 Working Capital Term Loan For Existing Units
Objective: The objective of the scheme is to provide timely and adequate working capital
assistance to the existing micro, small and medium enterprises (MSME) which have
availed term loans earlier from the Corporation, having proven track record.
Eligible Borrowers: Existing MSMEs engaged in the manufacture or production,
processing or preservation of goods i.e., manufacturing enterprises, which have availed
term loans earlier from the Corporation, having proven track record. The existing units
which have availed the WCTL under the SWS earlier from the Corporation are also
eligible for additional WCTL. Availing a term loan is not a pre-condition for granting
eligible WCTL under the scheme. The unit should be in existence with a minimum period
of operation of three years. The unit should be working profitably and net worth should
be positive. The units enjoying term loan / working capital loan from other commercial
banks / financial institutions are not eligible under the scheme.
1.3.8.10 Line of Credit for Purchase of Raw Materials
Objective: To provide timely and adequate working capital assistance in the form of
WCTL to MSMEs for purchase of raw materials from KSSIDC.
Eligible Borrowers: Sole Proprietorship, Partnerships, Co-operative Societies, Private
and Public Limited Companies etc., engaged in the manufacture / production, processing
or preservation of goods.
1.3.8.11 Assistance for Marketing Related Activities
Objective: To provide financial assistance to small & medium scale units to undertake
various activities necessary to increase their sales in domestic and foreign markets and to
create physical marketing infrastructure.
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Eligible Borrowers: Existing units (at least for two years) with good track record (no
default to any financial institutions / bank and asset classified as standard by bank) and
has sound financial position and has positive net worth & earned profit in last two years).
Existing or new units with good track record & sound financial position are eligible for
assistance under the scheme for establishing permanent exhibition or trade centres.
1.3.8.12 Acquisition of Existing Assets and Enterprises
Objective: To extend financial assistance for taking over of existing assets / enterprises.
Eligible Borrowers: Individuals, partnership firms, private & public limited companies,
co-operative societies etc., engaged in respective activities eligible for assistance from the
Corporation and in existence for minimum period of 2 years with good track record.
1.3.8.13 Assistance to Entertainment Industry
Objective: The objective of the scheme is to provide financial assistance for the
construction / purchase of cinema halls, multiplexes, production of short TV serials,
software for visual media publicity and feature films.
Eligible Assets: Assistance under the scheme is available for meeting the expenditure on
construction / purchase of buildings for multiplexes and cinema halls (the land cost will
not be eligible for financing), purchase of capital equipments for multiplexes, cinema
halls and software for visual media publicity and for production of TV Serials.
1.3.8.14 Assistance to Tourism Related Activities
Objective: To provide financial assistance for setting up of Amusement Parks,
Convention Centres, Hotels & Restaurants, Travel and Transport and Tourist Services
Agencies, and Mobile Canteen / Catering Services.
Eligible Borrowers: Sole proprietorships, partnerships, co-operative societies, private /
public limited companies. Hotels and Restaurants which are located on highways and
small towns which cater to the needs of tourists will also be considered for assistance.
The restaurant should have a minimum area of 50 Sq. Meters (500 Sq.ft.). The Hotels
should have Boarding, Lodging and Restaurant Facilities and Building Plan approved by
Local Authorities.
1.3.8.15 Assistance to Doctors / Qualified Medical Practitioners
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Objective: For purchase of the premises / renovation of the existing premises, acquiring
fixed assets like furniture, computers, office automation, ambulance, car / van, interiors
and medicare related equipment required for a clinic.
Eligible Borrowers: Doctors / medical practitioners with a bachelors degree in any
branch of medicine from recognized institute / university for setting of clinic. People
holding bachelor degree in radiology, bio-physics and bio-technology, with at least 5
years experience and a certificate of practice from a relevant authority, qualified
veterinary doctors are also eligible for assistance. The promoters should be an income tax
payee for last 2 years.
1.3.8.16 Assistance to Nursing Home / Hospitals
Objective: For establishment of new and expansion / modernization of existing nursing
homes and hospital. Loan is available for land, building and equipment for diagnostic,
monitoring the therapeutic use, air conditioners, ambulance etc.
Eligible Borrowers: Qualified medical practitioners or entrepreneurs employing
qualified doctors to run the hospital / nursing homes are eligible for assistance. The
project must be backed by expert of a post graduate doctor on full time basis.
1.3.8.17 Assistance for Acquiring Electro Medical Equipment
Objective: For procurement of new electro medical and related equipment with
accessories like CT scanners, Endoscopy, Gastroscopy, X-ray etc., Loan is also available
for establishing diagnosis laboratories.
Eligible Borrowers: Hospitals, Nursing homes and medical practitioners with relevant
qualification in general medicine, dentistry, radiology etc., and entrepreneurs employing
qualified doctors are eligible for assistance for acquiring electro medical equipment for
their professional use.
1.3.8.18 Scheme for Small Road Transport Operators
Objective: To meet expenditure towards cost of chassis, body building, initial taxes and
insurance for acquiring transport vehicles.
Eligible Borrowers: Small road transport operators.
1.3.8.19 Acquisition of ISO 9000 Series Certification
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years. The MFI should have only women members as its client. The MFI should have
achieved minimum outreach of 3000 members.
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Objective: This scheme is meant for extending financial assistance to first generation
women entrepreneurs to set up new SSI units. This scheme provides equity type of
assistance along with term loan. The equity type of assistance is termed as soft seed
capital.
Eligibility: The women entrepreneurs who seek assistance under this scheme should
possess managerial and technical skill to run the unit and they shall be the chief promoter
of the proposed unit.
1.3.8.29 Hire Purchase Scheme
Objective: KSFC introduced Hire Purchase scheme which provides a fast easy
alternative to ready cash. Under this scheme finance is available for procuring vehicles,
machinery and equipments.
Eligibility: Industrial concerns which are in commercial production for atleast 2 years
and have earned net profits and are regular in their repayments to financial institutions/
banks can avail assistance. Professionals and commercial transport operators can also
avail the assistance. The units requiring hire purchase assistance may approach
equipment lease finance and Hire Purchase department.
1.3.8.30 Non-Convertible Debentures
Objective: This scheme was introduced to subscribe the private placement of the
debentures issued by the corporate entities. The proceeds of this debenture issue should
be utilized by the companies to meet their long term working capital and capital
expenditure.
Eligibility Criteria: The Companies getting the assistance should fall under the relevant
provisions of SFCs' Act with regard to eligibility for such assistance. It should have been
in production for at least 3 years and earned profits. and should not be in default to
financial institutions or banks. Funds raised through issue of debentures should be
utilized to meet long term working capital margin and up to 50% on capital expenditure.
1.3.8.31 Ex-Serviceman Loan Scheme:
This scheme is available for ex-serviceman / widows of ex-servicemen to set up small
industrial units, acquire transport vehicles, set up hotel/ tourism related activities for
gaining self employment.
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KSFC also renders other financial services apart from the schemes mentioned above. The
services which it offers are given below:
1.3.9.1 General Insurance
KSFC has entered into a strategic alliance with IFFCO-TOKIO General Insurance
Company to market the Non Life Insurance Products. This would enable the clients of
KSFC to have credit and the insurance under one roof. The premium tariffs applicable are
same as the other insurance companies and at no extra service charges. An exclusive
Insurance Cell with well trained staff is in operation at Head Office. The details of the
general perils covered are:
Fire
Earth quake
Burglary
Machine breakdown
Marine
Cash safe / transit
Fidelity guarantee
Household Insurance
Personal Accident Cover
Medical Insurance
Vehicle Insurance
Bankers Indemnity
Trade and Office
Electronic Equipment.
Travel Insurance.
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employees and also avail Group Gratuity schemes to cover their statutory liabilities and
obtain tax exemptions on premiums paid.
The services are available at no extra cost at Head Office and at all the branches of the
Corporation situated in the district head quarters. The Corporation believes that Life
insurance is not only an investment decision but also a risk protection. The key persons of
the ventures who have availed the loans from KSFC can avail special policies to protect
against the risk of burden of debt in case of happening of any unfortunate event to the key
person. KSFC do have well trained staff for servicing the clients of life insurance at Head
Office as well as Branch Office.
1.3.9.3 UTI Mutual Fund Products
KSFC has entered into MOU with UTI MF for distributing UTI MF products. UTI
Mutual Fund is one of the leading Mutual Fund in the country. It has got more than
Rs.38,358.00 crore worth of assets under its management. It has got more than 40
schemes of offer, suitable for short term long term investments in the category of debt
funds, balance funds and equity linked schemes. The individuals, co-operative societies,
private limited companies, charitable trusts and PF trusts, co-operative banks can invest
their investible surplus in the UTI Mutual Fund Products.
The Corporation has got professionally trained persons to guide in the investment process
of UTI Mutual Fund at Head Office and Branch Offices. The service carries no extra
charges.
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Policy on Minimum Loan Size: The policy on the minimum loan size of Rs.5.00 lakhs
is applicable for all activities except medical and veterinary doctors where minimum limit
is Rs.2.00 lakhs.
The minimum size of the loan for others is reduced to Rs.2.00 lakhs in case of existing
units going in for expansion / modernisation.
Promoters' Contribution: The minimum promoters contribution as the percentage of
the total project cost prescribed in various schemes varies between 22.5% and 33.3%
depending on the location of the project, various schemes of SIDBI operated by the
Corporation, class of entrepreneur etc. The following norm may be followed while
sanctioning the loan:
PARTICULARS
MINIMUM PERCENTAGE
ON PROJECT COST
20%
22.5%
10%
Flexible
10%
Debt Equity Ratio: The Corporation adopts the norms for Debt Equity Ratio as per the
guidelines issued by the Small Industries Development Bank of India from time to time.
Present Norms:
LOAN LIMIT/SCHEME
Upto Rs.10.00 lakhs
Above Rs.10.00 lakhs
RSR Scheme
Modernisation Scheme
Additional Loans ( within overall
DEBT-EQUITY RATIO
3:1
2:1
Flexible
Projects 4 : 1
Overall 2 :1
Projects 2 : 1
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limit)
Residential Apartment Projects
Residential Layout formation
Overall 2 :1
1:1
1:1
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CATEGORY
Proprietary / Partnership
Corporate bodies (both private / public Ltd), and
registered co-operative societies
MAXIMUM LOAN
Rs.200.00 lakhs
Rs.500.00 lakhs
PARTICULARS
For loans upto Rs. 25.00 lakhs
For loans between Rs.25.00 lakhs
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Rs.3,000/-
Upfront fee:
Small Scale Enterprises and others
Medium Scale Enterprises
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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Legal Fee: In addition to the above, documentation fee for legal scrutiny of the title
deeds, execution of hypothecation and mortgage deed etc., at 0.1% of loan amount is
being charged. The EG department after scrutinizing the application and the enclosures
submitted, draws the receipt for the processing fee paid and forwards the application to
the Credit Department through General Manager (Credits). The Credit Department
appraises the project and disburses funds after the sanction of loan and will monitor the
implementation of the project till the project is completed and final disbursement made.
Entrepreneurs are advised to contact the Deputy General Manager (Credits) for
processing of the loan applications.
The Credit Department is also provided with legal officers for legal scrutiny of the
documents and documentation thereafter i.e., after the loan is sanctioned and terms and
conditions of sanction are accepted by the promoters. The above is the procedure in brief
for availing the financial assistance from the Corporation. For further details the
promoters are advised to personally contact the following officers.
Assistant General Manager (EG)
Deputy General Manager (Credits)
Promoters are also advised to meet the General Manager (Credits), if they have any
problem or for seeking any clarification.
In the Branch Offices, promoters are advised to meet the Branch Managers to discuss
their projects and to finalize the proposals.
SL.
NO.
CATEGORY OF BORROWERS/LOANS
INTEREST
RATES (IN %)
FOR LOANS
UPTO RS.1
CRORE
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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AN INTERNSHIP REPORT ON
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a. All Term Loans (including WCTL) to MSMEs,
1.
13.50
13.50
15.50
15.50
Medical Equipment.
f. Assistance to qualified professionals: Management
Professionals, Medical Professionals, Accounting
Professionals, Architects & Engineers, Veterinary Clinics.
g. DG Sets, Mobile Generators,
h. Godown / Warehouse & Convention centers.
i. Office Automation
j. Training Institutions.
a. Construction / Buying Commercial Complexes,
b. Construction activities like Residential Apartments, Villas,
Group housing, Lay out formation/Property Development
c. Shopping Complexes,
d. Industrial Estates, IT Software Parks,
2.
DEPARTMENT OF MANAGEMENT
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a. Corporate loans,(excluding Corporate loans to activities at
Sl. No. 2), AMARA scheme, Bridge loans , Finance to
3.
existing assets,
b. Entertainment industry (including Cinema
15.00
15.00
14.50
14.50
14.50
14.50
4.
5.
Since its inception, KSFC has assisted more than 1.60 lakh units with cumulative
sanction of more than Rs. 10400 crore out of which about more than 50% is towards
SMEs.
Introduction of more than 30 loan assistance scheme for extending assistance to all
sections of the society.
DEPARTMENT OF MANAGEMENT
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Introduction of loan assistance for getting ISO 9000 certification for Export
Oriented Units.
The premier position among all SFCs of the country with regard to sanctions and
recovery.
It is the proud privilege of KSFC to have assisted many industries that are
internationally recognized like INFOSYS and BIOCON.
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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CHAPTER 2
ORGANISATION STRUCTURE
OF KSFC
PAGE 40 OF 97
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SRI L. V. NAGARAJAN,
IAS, CHAIRMAN, KSFC
DESIGNATION
Chairman &
Managing Director
Managing Director
DIRECTOR
DIRECTOR
DIRECTOR
DIRECTOR
DIRECTOR
DEPARTMENT OF MANAGEMENT
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8.
9.
10.
Sri. C. Basavegowda
Sri. G.S. Doreswamaiah
Sri. H.V.S. Krishna
DIRECTOR
DIRECTOR
DIRECTOR
NAME
Sri. M. Madan Gopal, I.A.S.
Sri. B.R. Prem Kumar
Sri. S.D. Burde
Sri. Gurdeep Singh Dang
Sri. Sat Pal
Sri. C. Basavegowda
Sri. G.S. Doreswamaiah
DESIGNATION
Chairman
Member
Member
Member
Member
Member
Member
DEPARTMENT OF MANAGEMENT
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GE M
MD
a
n
Z
a
og
n
n
e
g
s D
i
e
r
c
t
Chart 2.1 Organisation Structure of KSFC
DEPARTMENT OF MANAGEMENT
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Abbreviations for the various short forms used in the organizational chart
EA: Executive Assistant
ED: Executive Director
GM: General Manager
AGM: Assistant General Manager
IA: Internal Audit
HP: Hire purchase
IT: Information Technology
AR: Asset Reconstruction
SUMD: Sick Unit Monitoring Cell Division
BD & CR: Business Development & Credit Research
Type of Organisation Structure
KSFC follows functional form of organization structure. Under, functional organization,
men with special abilities to perform specific function will be employed and the benefit
of specialization will be enjoyed by the organization. This will certainly lead to
organizational balance by using the services of specialists in the required functions.
Advantages of Functional Organization
Functional form of organization structure offers the following advantages:
1) This method gives full scope for division of labour and specialization and therefore,
enables the concern to derive all the advantages of specialization.
2) The most important advantage of functional organization is the extensive use of the
expert knowledge of the specialists. Planning and execution of the work becomes
scientific because it is entrusted to the experts in that field.
3) It reduces the burden of executives as they are not required to perform too many
duties.
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4) The system promotes co-operation as there is little or no scope for one man control
in the organization.
Disadvantages of Functional Organization
This form of organization structure suffers from the following disadvantages:
1) The principle of unity of command is ignored under this system.
2) It is difficult to achieve co-ordination between the specialists and team-spirit among
workers.
3) The overhead expenditure increases considerably because of multiplicity of
specialists.
2.2 RESPONSIBILITY AND AUTHORITY OF KEY PERSONNEL OF KSFC
Following job descriptions are made for the officers, AGMs and above level:
2.2.1 Managing Director
Managing Director is the chief executive officer of KSFC responsible for overall
strategies, policies, resources and operation of the business. He is the authority for
implementing the directives of the board and also the disciplinary authority; as such he
leads KSFC quality initiatives.
Responsibility and Authority of Managing Director
1) Setting the targets for various performance parameters & their accomplishment
through suitable operational strategies
2) Empowered to carry out executive function including quality system either
independently or through delegation of authority.
3) In addition to the above he is responsible and authorized
To define & review the quality policy and quality objective of KSFC.
To define and develop the organizational structure, defining authorities&
responsibilities of personnel and their inter relationship.
To provide adequate material and human resource.
To appoint management representative.
To conduct management reviews.
DEPARTMENT OF MANAGEMENT
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3)
4)
5)
6)
7)
8)
control etc.,
7) Implementation of HR policies.
8) All other matters related to above departments.
2.2.8 General Manager (Zones)
1)
2)
3)
4)
5)
6)
7)
8)
Effective and efficient functioning of branch offices (North and South) in respect of;
Business Development.
Entrepreneurial Guidance
Enquiry handling
Handling of Application.
Appraisal of Projects.
Sanction and disbursement of loans.
Recovery of loan.
DEPARTMENT OF MANAGEMENT
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Bengaluru Rural
Belgaum
Bellary
Dharwad
Gulbarga
Hassan
Kolar
Mandya
Mangalore
Mysore
Tumkur
Udupi
B Grade Branches
Bagalkot
Bidar
Bijapur
Chamarajanagar
Chitradurga
Davanagere
Gadag
Haveri
Karwar
Koppal
Madikeri
Raichur
Shimoga
Zonal Branches
Bengaluru Rural
Belgaum
Davanagere
DEPARTMENT OF MANAGEMENT
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Dharwad
Gulbarga
Mangalore
Mysore
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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CHAPTER 3
DEPARTMENTS OF KSFC
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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Head Office has two Recovery Departments called Recovery-1 and Recovery-2. R-1
looks after the Bangalore cases, R-2 looks after the outside Bangalore cases. It has also
two Deputy General Managers to look after recovery works for Bengaluru and other than
Bengaluru cases. The total recovery during the year 2010-11 stood at Rs. 586.71 crore as
compared to Rs. 554.94 crore made in the previous year.
DEPARTMENT OF MANAGEMENT
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The corporation has unique combination of professionals on its pay-rolls - CAs, CFAs,
MBAs, MAs, MCOMs, LLBs, M.TECHs, BEs, PhDs, etc., thus, diversity in its human
resources is one of the great strength and asset of the corporation.
3.1.9 Library
KSFC have full- fledged special library with collection of books on finance, industries,
banking etc. Library maintains data bank on industrial updates. It also contains KSFC
news, magazines, various special journals related to finance, management, technology,
banking, etc., annual reports of KSFC and other SFCs, different daily news papers.
DEPARTMENT OF MANAGEMENT
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A-4
department
deals
with
consolidation
of
accounts
of
all
the
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To create a good volume of business for corporation with its lending policies with an
intention to create a qualitative portfolio.
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION
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5) To throw light on the degree of efficiency in the management and the effectiveness in
the utilization of its assets.
6) To provide the way for effective control of the enterprise in the matter of achieving
the physical and monetary targets.
7) To help management in discharging its basic functions like forecasting, planning, coordination, communication, control, etc.
8) To promote co-ordination among the departments and the staff by the study of
performance and efficiency of each department.
9) To point out the financial condition of business whether it is strong, questionable, or
poor and enables the management to take necessary steps.
10)To act as an index of the efficiency of an enterprise.
DEPARTMENT OF MANAGEMENT
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Liquidity Ratios
Leverage Ratios
Profitability Ratios
Activity/Efficiency Ratios
Current Ratio
DEPARTMENT OF MANAGEMENT
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This ratio is also called Working Capital Ratio. It is used to assess the short-term
financial position of the business concern. In other words, it is a measure of the
companys short-term solvency, i.e. its ability to meet its short-term obligations. It
matches the total current assets of the company against its current liabilities.
As a measure of short-term solvency, it indicates the rupees of current assets available for
each rupee of current liability. Apparently, the higher the current ratio, the more protected
are the short-term creditors and vice -versa. Conventionally, a current ratio of 2:1 (current
assets twice of current liabilities) is satisfactory. The Formula for computation of current
ratio is given below:
Current Assets
Current Assets
Current Liabilities = Creditors + Bills Payable + Bank Overdraft + Provision for Taxation
+ Proposed Dividend + Unclaimed Dividend + Payment Received
in Advance + Outstanding Expenses + Other Liabilities Payable
within One Year.
Current Ratio of KSFC
Table 4.1 Showing Current Ratio of KSFC:
(Rs. in Lakhs)
YEAR
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
CURRENT
ASSETS
34,534.03
19,612.14
27,933.61
23,712.52
18,690.25
29,196.75
CURRENT
LIABILITIES
12,434.02
7,816.77
18,900.97
9,292.14
9,453.41
10,345.30
CURRENT
RATIO
2.78
2.51
1.48
2.55
1.98
2.82
DEPARTMENT OF MANAGEMENT
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CURRENT RATIO
3
2.5
2
1.5
RATIOS 0.51
0
YEARS
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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This ratio is also called, Cash Position Ratio or Cash Ratio or Absolute Liquidity
Ratio. This ratio establishes the relationship between super quick assets and current
liabilities. It may be used by banks and financial institutions who are very much
interested in lending short-term loans to companies for a period of not more than three
months. Generally, an absolute liquid ratio of 0.5:1 is considered as an ideal ratio. This
ratio is computed with the help of the following formula.
Super-Quick Ratio
Where,
(Rs. In Lakhs)
YEAR
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
SUPER QUICK
ASSETS
11,563.87
4,871.07
4,995.99
6,498.37
6,979.35
3,651.58
CURRENT
LIABILITIES
12,434.02
7,816.77
18,900.97
9,292.14
9,453.41
10,345.30
SUPER QUICK
RATIO
0.93
0.62
0.26
0.7
0.74
0.35
DEPARTMENT OF MANAGEMENT
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YEARS
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The second category of financial ratios is Leverage or Capital Structure Ratios. The longterm lenders/creditors would judge the soundness of a firm on the basis of the long-term
financial strength measured in terms of its ability to assure the long-term lenders with
regard to a) periodic payment of interest during the period of the loan and b) repayment
of principal on maturity or in predetermined instalments at due dates.
There are, thus, two aspects of the long-term solvency of a firm: a) ability to repay the
principal when due and b) regular payment of the interest. Accordingly, there are two
different, but mutually dependent and interrelated, types of leverage ratios. First, ratios
are based on the relationship between borrowed funds and owners capital. These ratios
are computed from the Balance Sheet and reflect the relative / stake of owners and
creditors in financing the assets of the firm. In other words, such ratios reflect the safety
margin to the long-term creditors. The second category of such ratios is based on the
Income Statement and shows the number of times the fixed obligations are covered by
earnings before interest and taxes. In other words, they indicate the extent to which a fall
in operating profits is tolerable in that the ability to repay would not be adversely
affected.
Following are some important leverage ratios
Debt to Equity Ratio
The relationship between borrowed funds and owners capital is a popular measure of the
long-term financial solvency of a firm. This relationship is shown by the Debt-Equity
Ratio. This ratio indicates the relative proportions of debt and equity in financing the
assets of a firm. It reveals the extent to which debt financing has been used in the
business. It discloses to the creditors the extent of their in interest being covered by the
net worth by the company. It can be computed by using the following formula.
Debt-Equity Ratio
Where,
Total Debt Debentures + Term Loans + Loans on Mortgage + Loans from Financial
= Institutions + Other Long-Term Loans + Redeemable Preference Share
DEPARTMENT OF MANAGEMENT
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(Rs. In Lakhs)
YEAR
TOTAL
DEBT
SHAREHOLDERS
' FUNDS
DEBT-EQUITY
RATIO
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
1,90,155.54
1,73,719.56
1,75,960.85
1,72,155.17
1,76,040.01
1,96,015.74
12,892.55
12,892.55
33,108.24
58,054.77
70,732.82
72,588.68
14.75
13.47
5.31
2.97
2.49
2.7
DEBT-EQUITY RATIO
20
15
10
RATIOS
5
0
YEARS
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debt. It is seen from the table that there has been continuous decline in the quantum of
debt proportion from 14.75:1 in 2005-06 to 2.49:1 in 2009-10. However, a marginal rise
in Debt-Equity Ratio was seen at the end of the study period.
The Debt-Equity Ratio indicates the margin of safety to the creditors. A ratio of 14.75:1
implies that for every 14.75 rupees of outside liability, the firm has only one rupee of
owners capital. It has serious implications from creditors point of view because owners
are putting up relatively less money of their own. However, KSFC reduced the proportion
of debt in its capital structure over a period of time by issuing more shares. At the end of
the study period, the Debt-Equity Ratio of KSFC was 2.7:1 which is quite an
improvement over 2005-06s ratio. Yet, it is not a satisfactory ratio.
Debt to Total Tangible Assets Ratio
The Debt-Total Tangible Assets Ratio indicates the proportion of total tangible assets
financed by total debt. Symbolically, it is equal to:
Debt-Total Assets Ratio
Total Debt
Total Tangible assets
Where,
Total Tangible Assets = Total Assets (Goodwill + Preliminary Expenses +
Accumulated Losses)
TABLE 4.4 Showing Debt-Total Tangible Assets Ratio Of KSFC
(Rs. In Lakhs)
YEAR
TOTAL
DEBT
TOTAL TANGIBLE
ASSETS
DEBT-TOTAL
TANGIBLE ASSETS
RATIO
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
1,90,155.54
1,73,719.56
1,75,960.85
1,72,155.17
1,76,040.01
1,96,015.74
1,42,720.56
1,26,520.87
1,55,194.58
1,72,351.35
1,89,210.39
2,13,229.12
1.33
1.37
1.13
0.99
0.93
0.92
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YEARS
Proprietary Ratio
This ratio is called Equity Ratio or Owners Fund Ratio or Shareholders Equity Ratio.
This ratio points out the relationship between the shareholders funds and total tangible
assets. In other words, it indicates the proportion of total assets financed by owners. The
formula for this ratio may be written as follows:
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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'
Proprietary Ratio
Shareholder s Funds
100
Total Tangible Assets
(Rs. in Lakhs)
YEAR
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
SHAREHOLDERS
' FUNDS
12,892.55
12,892.55
33,108.24
58,054.77
70,732.82
72,588.68
TOTAL TANGIBLE
ASSETS
1,42,720.56
1,26,520.87
1,55,194.58
1,72,351.35
1,89,210.39
2,13,229.12
PROPRIETARY
RATIO (%)
9
10.2
21.3
33.7
37.4
34
PROPRIETARY RATIO
40
30
20
RATIOS 10
0
YEARS
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A marginal increase in Proprietary Ratio was registered in the next year. A significant rise
in Proprietary Ratio was seen from 9% in 2005-06 to 37.4 % in 2009-10. This rise was
partly due to increase in the amount of reserves and surplus and the issue of additional
share capital The rise in the ratio implies corresponding increase in the security to the
creditors as more shareholders funds are available as safety of margin. Thereafter, the
ratio declined to 34%.
The analysis of these figures reveals that there has been appreciable improvement in the
Proprietary Ratio of KSFC during the period of study. However, creditors are still
exposed to more risk. Usually, a Proprietary Ratio of 50% is regarded as safe.
Fixed Assets to Proprietors Funds Ratio
This is also known as Fixed Assets to Net Worth Ratio. It establishes the relationship
between fixed assets and shareholders funds. The main object of calculating this ratio is
to ascertain the percentage of owners funds invested in fixed assets. This is an indicator
of the efficiency of the management regarding formulation of financial planning. It can
be calculated as follows:
Fixed Assets to Proprietors funds Ratio
Assets
100
Shareholder s ' Funds
Where,
Fixed Assets = Total Fixed Assets - Depreciation
(Rs. in Lakhs)
YEAR
2005-06
2006-07
2007-08
2008-09
FIXED
ASSETS
821.85
748.21
6155.17
6094.41
SHAREHOLDERS'
FUNDS
12,892.55
12,892.55
33,108.24
58,054.77
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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2009-10
2010-11
6011.58
5280.52
70,732.82
72,588.68
8.50
7.27
5.00
0.00
YEARS
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This ratio is also known as Capital Structure Ratio or Leverage Ratio. It is used to
analyze capital structure of the company. It establishes the relationship between fixed
interest, dividend bearing securities and equity shareholders funds. It is an indicator of
the degree of risk involved in the total capital employed in the business. It can be
calculated as follows:
Capital Gearing Ratio =
Where,
Fixed Interest and Dividend bearing Funds = Preference Share Capital + Debentures +
Long-Term Loans
Equity Shareholders Funds = Equity Share Capital + Reserves and Surplus {Goodwill
+ Preliminary Expenses + Profit and Loss A/c (Dr.)}.
TABLE 4.7 Showing Capital Gearing Ratio of KSFC
(Rs. in Lakhs)
YEAR
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
EQUITY
SHAREHOLDERS'
FUNDS
12,892.55
12,892.55
33,108.24
58,054.77
70,732.82
72,588.68
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
PAGE 74 OF 97
CAPITAL
GEARING
RATIO
13.79
12.89
4.74
2.81
2.36
2.56
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RATIOS
16
14
12
10
8
6
4
2
0
YEARS
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This ratio establishes the relationship between the amount of net profits or earnings
before the deduction of interest, taxes and fixed interest charges. This ratio is used as a
yardstick for the lenders to know whether the business concern is able to pay its fixed
interest charges on long-term loans periodically. Interest Coverage Ratio is calculated
with the help of the following formula:
EBIT Operating Profits
Interest Charges
(Rs. in Lakhs)
YEAR
EBIT
FIXED INTREST
CHARGES
INTEREST COVERAGE
RATIO
2005-06
17,676.1
7
15,886.7
5
20,453.2
1
13,127.4
8
15,246.0
0
17,729.2
1
16,780.62
1.05
14110.66
1.13
13,634.01
1.50
16,667.20
0.79
13,706.49
1.11
14,391.03
1.23
2006-07
2007-08
2008-09
2009-10
2010-11
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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RATIOS
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
YEARS
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per share. Management employs profitability ratios to assess the operational performance
of the business concern. They are used by the creditors to ascertain the margin of safety
available to them. Profitability ratios are the test of wages and fringe benefits to the
employees. Following are the important profitability ratios:
Return on Assets (ROA)
Here, the profitability ratio is measured in terms of the relationship of between net profits
and assets. The ROA may also be called profit to assets ratio. It is calculated to measure
the productivity of total assets. It is calculated using the following formula:
Net Profit after Interest Tax
(Rs. in Lakhs)
YEAR
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
TOTAL TANGIBLE
ASSETS
1,42,720.56
1,26,520.87
1,55,194.58
1,72,351.35
1,89,210.39
2,13,229.12
RETURN ON
ASSETS
0.36
1.02
4.01
(-2.31)
0.15
1.03
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RETURN ON ASSETS
4.5
4
3.5
3
2.5
2
RATIOS 1.5
1
0.5
0
YEARS
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Where,
Capital Employed = Equity Share Capital + Preference Share Capital + Reserves and
Surplus + Debentures and Long-Term Loans (Fictitious Assets +
Intangible Assets + Investments outside the Business).
(Or)
Capital Employed = Proprietors Funds + long-Term Loans.
TABLE 4.10 Showing Return on Investment of KSFC
(Rs. in Lakhs)
YEAR
EBIT
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
17,676.17
15,886.75
20,453.21
13,127.48
15,246.00
17,729.21
CAPITAL
EMPLOYED
1,29,971.29
1,18,579.19
1,20,922.45
1,27,783.65
1,26,877.61
1,56,272.35
RETURN ON
INVESTMENT
13.6
13.4
16.91
10.27
12.02
11.35
RATIOS
5
0
YEARS
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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The Return on Investment of KSFC is presented in Table 4.10. It is seen from the table
and chart that the ratio values depicted a fluctuating trend throughout the study period. It
ranged from 10.27, the lowest, in 2008-09 to 16.91, the highest, in 2007-08.
The Return on Investment was 13.6 in 2005-06 which implies that the Corporation was
able to earn Rs.13.6 on Rs.100 investment. It can be considered as reasonably satisfactory
level of return. The return slightly declined in the next year. The Corporation earned
Rs.16.91 on Rs.100 investment which was the highest during the study period as well. In
the subsequent years, KSFC earned a reasonable rate of return on its investment. In the
last year of the study period there was a decline in the rate of return which is not a good
sign for KSFC.
Return on Ordinary Shareholders Equity
While there is no doubt that the preference shareholders are also owners of a firm, the
real owners are the ordinary shareholders who bear all the risk, participate in
management and are entitled to all the profits remaining after all outside claims including
preference dividends are met in full. The profitability of a firm from the owners point of
view should, therefore, be assessed in fitness of things, in terms of the return to the
ordinary shareholders. The ratio under reference serves this purpose. It relates net profit,
finally available to equity shareholders, to the capital employed by them. It is calculated
as follows:
Return on Ordinary Shareholders Equity
(Rs. in Lakhs)
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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YEAR
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
NET PROFIT
AFTER INTEREST
AND TAX
526.17
1295.37
6216.74
-3984.09
296.15
2187.14
ORDINARY
SHAREHOLDERS'
EQUITY
12,892.55
12,892.55
33,108.24
58,054.77
70,732.82
72,588.68
RETURN ON
SHAREHOLDERS'
EQUITY
0.041
0.100
0.188
-0.069
0.004
0.030
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years there was a little increase in the level of return, which was very insignificant. In
2008-09 there was negative return. In 2009-10, the Corporation made little progress.
Again, in the last year of the study period, the return declined. This is not a healthy sign.
On the whole, the return to equity shareholders is not at all considered to be satisfactory.
Earnings Per Share (EPS)
Earnings per Share (EPS) measures the profit available to the equity shareholders on a
per share basis, that is, the amount they can get on every share held. It is calculated by
dividing the profits available to the equity shareholders by number of outstanding shares.
The profits available to the ordinary shareholders are represented by net profits after tax
and preference dividend. Thus,
EPS =
(Rs. in Lakhs)
YEAR
EAIT
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
526.17
1,295.37
6,216.74
-3917.39
296.15
2187.14
NO. OF ORDINARY
SHARES OUTSTANDING
97,84,550
97,84,550
97,84,550
1,23,05,060
5,09,05,750
6,19,05,750
EARNINGS PER
SHARE
0.0000538
0.0001324
0.0006354
-0.0003184
0.0000058
0.0000353
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
PAGE 83 OF 97
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of Karnataka.
To get the practical knowledge of working of the organization.
To study the organization structure of the company.
To study the various departments working in KSFC.
To study the various products and services offered by KSFC to serve the needs of
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over a period of six years, that is, from 2005-06 to 2010-11. It involves a comparison of
the ratios of KSFC over time, that is, present ratios are compared with the past ratios of
KSFC itself. It indicates the direction of change in the performance improvement,
deterioration or constancy over the years.
To draw the conclusions, a number of mathematical, financial and technical tools and
techniques have been used in this study. The analysis has been carried out basically to
know the working of the organization and to ascertain the financial strengths and
weaknesses of the Corporation.
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the concerned unit but also make a comparison with other units operating in the similar
field to find out the strengths and weaknesses of the organization.
The technique of ratio analysis involves five steps, namely, formulation of objective,
collection of data, computation of ratio, comparison of ratio with the standard one and the
interpretation and conclusion. The last two steps, i.e. the comparison, interpretation and
conclusion require careful study and sound judgement on the part of the analysts because
there is no clear cut standard for each and every ratio and the interpretation of ratio values
is based on careful thought as to the kind of insight the analysts wish to obtain.
While, studying the financial performance and position of KSFC, it is felt to study
various important ratios falling under the category of liquidity, leverage and profitability.
Other Tools:
Apart from financial techniques, diagrammatic and graphic representations are made to
provide a simplified way of presenting the data for vivid understanding of trends and
relationships.
4.5.9 Limitations of the Study:
The below mentioned are the constraints under which study is carried out.
1) This research being the first research of researcher, errors might have crept in.
2) The study is based mainly on secondary data collected from the published reports,
financial statements of the sample unit and also from different books. Therefore, the
limitations entailing in the secondary data and financial statements will exist in the
study.
3) As the present study deals with a single unit, the inter-firm comparison cannot be
made and hence, its actual performance in comparison to the other SFCs remains
unanswered.
4) The study adopts the analysis through Ratios. Since ratio itself has many loop holes,
the study also resembles the defects present in the ratio analysis.
5) Ratios are stated in numbers. These numbers are objective. But, such numbers are
interpreted by analysts. Hence, according to personal bias, same ratio may be
interpreted differently by different analysts.
6) The results obtained from the analysis of six years figures cannot be generalized.
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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CHAPTER 5
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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SWOT ANALYSIS
EXTERNAL
INTERNAL
POSITIVE FACTORS
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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5.2.2 Weaknesses
1. Higher Interest Rates
Interest rates are costlier when compared to nationalized and private banks and view of
this it is difficult for the organization to attract good customer.
2. Inadaptability
Changing the policy adopted may be difficult to the organization, because it is a statutory
corporation with lots of government control.
3. Outdated System
KSFC still follows an outdated credit appraisal system.
4. Long Procedure
The procedure taken in executing some schemes is very long.
5. Accumulated Losses
KSFC has a huge accumulated loss in its Balance Sheet. This prevents KSFC from
paying dividend to shareholders.
6. Low Earnings
The Corporation has not been able to earn sufficient profit to provide a margin of safety
to the lenders. The investment made in the tangible assets is not justified by the amount
of income that KSFC is able to generate.
5.2.3 Opportunities
1) Development in infrastructure sector
2) The rate of growth of economy also provides an opportunity to extend the financial
assistance to an increasing trend.
5.2.4 Threats
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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1) Private Banks like ICICI, HDFC and commercial banks are very aggressive in
financing loans by reducing their lower interest rate and processing time in their
corporate finance.
2) Some corporations like IDFC are focusing their operations only on particular area
like infrastructure.
3) Commercial banks are coming up with new innovative ideas for increasing the loan
amount.
CHAPTER 6
FINDINGS, SUGGESTIONS AND
CONCLUSION
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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FINDINGS
Prior to providing assistance to a new unit an intensive study is done on the
technical feasibility and financial liability of the proposed project by appropriate
expertise in the field.
KSFC has norms to decide the repayment period for a loan. Apart from this cash
generation capacity of the proposed project is considered to fix up actual repayment
period.
KSFC provides guidelines to the borrowers, and supervise/monitor the progress of a
project and makes follow up during the period of project implementation.
KSFC offers a number of schemes with different features to meet the varied needs
and requirements of the clients.
A borrower can avail financial assistance under more than one scheme and can take
additional loan before repaying the previous loan. But this depends upon the
existing loan transactions with the corporation.
KSFC services the nook and corner of Karnataka with its extensive network of 7
zonal offices, 3 super A grade branch offices, and 14 B grade branch offices.
The corporation is effectively utilizing its human resources.
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The liquidity position of KSFC has been found to be very satisfactory as represented
by Current Ratio and Super Quick Ratio.
KSFC is heavily relying on debt as a source of funds as represented by Debt-Equity
Ratio.
KSFC strengthened its capital structure recently by issuing more shares which
allows it to operate flexibly.
The Corporation has not been able to earn sufficient profit to provide a margin of
safety to the lenders.
The investment made in the tangible assets is not justified by the amount of income
that KSFC is able to generate.
The amount of earnings available to the equity shareholders is very meager.
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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SUGGETIONS
KSFC should upgrade its system/technique of credit appraisal by imparting training
to its staff.
In KSFC interest rates are high compared to the other commercial banks. They
should be revised.
The government control should be minimized and working should be done as in a
private company.
Targets should be set to the recovery officers and a special incentive should be
provided to those officers who achieve their targets.
It was observed that Current Ratio and Super Quick Ratio in certain years were found
to be above the standard ratio. Hence, it is recommended that KSFC should try to
reduce working capital and keep it at the required level.
The EPS is much below the desirable ratio. Hence, there is an urgent need to raise the
earnings so that equity shareholders are suitability rewarded.
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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Conclusion
Karnataka State Financial Corporation which was established in 1959
has significantly contributed to the growth of SMEs backward are
development and promotion of first generation entrepreneurs. It has
assisted more than 1.60 lakh units with cumulative sanction more than
Rs. 10,064 crore.
KSFC offers a number of schemes to serve the different needs of its
clients. It has introduced more than 30 loan assistance schemes for
extending assistance to all sections of the society. It has branches all over the state. There
are branches in every district so that the people can have a better access to the corporation
and avail the assistance they need.
To assess the financial performance and financial condition of KSFC, its financial
statements were studied and analyzed with the help of ratios. It was observed that KSFC
maintained current assets more than what are usually considered as standard during the
study period. As far as its solvency position is concerned, it was found that KSFCs assets
were insufficient to honour its long term obligations. However, a close observation of the
figures of the last years of the study period reveals that it made a good progress. With
regard to its profitability, it can be said that revenue or income generated by the KSFC
was not sufficient to justify the amount of investment made in the business. The earnings
available to the equity shareholders were also too marginal.
On the whole, it can be concluded that though the financial results were not appreciable
in the initial years of the study period, it was able to improve upon its performance over
the subsequent years. But, it still needs to raise its performance standards so that
obligations of lenders are met as and when they become due for payment and equity
shareholders are suitably are rewarded.
DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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DEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF KARNATAKA
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