KFC Unveils Liberal Credit Policy, Venture Debt Scheme for Startups

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Thiruvananthapuram: In what could be a relief to new entrepreneurs and startups depending on banks and NBFCs for loans at high rates, the Kerala Financial Corporation (KFC) has unveiled a fresh set of liberal credit policies. Pinarayi Vijayan, Chief Minister, Kerala launched the revamped credit policy of KFC in the State capital on May 9.

At present, lending is based on PLR under which the interest charged is 14 to 16 per cent. Targeting to engage more entrepreneurs, KFC will move towards base rate, which will be 9.5 per cent, starting June 1. Under this scheme, interest will be decided based on the risk rating of the borrowing entrepreneurs. The Corporation will borrow money from bond markets at about 8.9 per cent interest and give it out it as loans at an interest of 9.5 per cent. It also puts KFC under tremendous risk as defaults of repayment can lead to crisis.

The Chief Minister also pointed that strong marketing solutions are needed to draw more entrepreneurs. For the best debt recommendations, KFC will have centralized appraisal systems. For this purpose, appraisal hubs need to be opened in Ernakulam, Kollam and Kozhikode. The lending recommendations by the appraisal body would be reviewed by a committee led by the chairman and MD and the borrower would be informed of the corporation’s decision within seven days. Following that, KFC will implement a system to sanction a loan in just 30 days.

For new enterprises, interest rates will be decided based on the risk rating of the borrower. Only borrowers with the best rating will be granted loans according to the revamped credit policy of KFC. “If these measures are strictly followed, KFC will have a bright future,” said Vijayan.

Currently, the lending portfolio of KFC is Rs. 2500 crore. The Corporation hopes to double the figure in the next three years. It is laudable that KFC is aiming to encourage startups in Kerala. Some of the startups which opened in Kerala have attracted international attention in a very short span of time. In what is expected to be a relief to startup entrepreneurs, KFC plans to release up to Rs. 10 lakh as credit to them at low interest rates and liberal conditions. Under a new Purchase Order Finance Scheme, KFC will further sanction up to Rs 1 crore as credit to startups when they start production on a commercial basis – upon receiving a purchase order.

Also, under the new credit policy, KFC will implement a Venture Debt Scheme for the first time in the state. Startups which have shares of Venture Capital funds will be eligible for the venture debt scheme. Both Purchase Order Finance Scheme and Venture Debt Scheme will be implemented with the State Government’s guarantee.
“The government trusts KFC and I hope that it will be able to work with the customers on the developmental front,” said Vijayan.

Although state financial institutions in south India are performing remarkably, the Central Government’s approach towards them has not been encouraging. The Central Government-owned financial institution Small Industries Development Bank of India (SIDBI), which is supposed to refinance state financial institutions, has completely stopped giving credit to KFC. “There is a clear effort to shut down institutions like KFC. It is important to exert pressurise on the Central government to bring about a change in the situation,” the Chief Minister added.

A major challenge faced by the Corporation is that it cannot give out credit more than Rs. 8 crore. When the borrower’s firm grows, he or she will have to depend on large banking corporations. The credit policy of KFC is based on the State Financial Corporation Act. According to experts, absence of amendment to the law in the last 18 years has adversely affected KFC. “If the law is not amended taking into consideration the real situation, the state financial institutions will not be able to perform competitively,” Vijayan said.

Also, KFC is not authorized to provide credit to fund capital. KFC cannot give credit more than Rs. 8 crore unless it has the status of small-scale bank and the request of KFC to accord the status was rejected by RBI. Besides, the central bank of India has prohibited KFC from accepting public deposits citing its seven per cent Non-Performing Assets (NPA).

According to Thomas Isaac, Finance Minister, Kerala, the State Government aims to reinvent KFC as one of the best financial institutions in the country. “As per the new policies, the target is not to book maximum profit but to help maximum deserving entrepreneurs and businesses,” he said.

Sanjeev Kaushik, Chairman and Managing Director, KFC; K Muraleedharan MLA; Paul Antony IAS, Chief Secretary and Manoj Joshi, Principal Secretary of Finance were also present at the function.