Kerala Financial Corporation (KFC), a leading State Financial Corporation (SFC), is making an attempt to take over a non-banking financial company (NBFC).

KFC, as it is called, has been making waves on the basis of its business performance, low-levels of non-performing assets, and its capacity to raise cheap funds from leading Central Government-owned institutions.

Speaking to BusinessLine , Sanjeev Kaushik, Chairman and Managing Director, KFC, said the move to take over an NBFC owned by the Government of Kerala has reached a “certain stage”.

It was at a recent meeting of the Public Enterprises Board, headed by the State Chief Secretary, that the case of Kerala Power Infrastructure Finance Corporation (KPIFC) had come up for discussion.

KPIFC has seven to eight employees and a loan size of ₹100 crore and lends only to the customers of Kerala State Electricity Board, but has an NBFC licence to boot.

The takeover of this government-owned NBFC is bristled with two main advantages for KFC – getting an operational NBFC licence for itself and the capacity to raise deposit funds. Earlier, a meeting of the board held in October, had directed KFC to explore the possibility of acquiring an NBFC to mobilise low-cost funds through public deposits.

“The NBFC licence apart, the other major takeaway would be to raise even more cheap funds from Central Government-owned institutions such as India Infrastructure Finance Company Limited (IIFCL), National Housing Bank, or Hudco,” said Kaushik.

KFC can retain its status as a State Finance Corporation and continue to enjoy its privilege while seeking to possibly move its loan operations into the NBFC on the one hand and raising deposit funds on the other.

Last year, KFC could get a low-cost refinance of ₹200 crore from IIFCL at a rate of 8.47 per cent, which is the lowest rate of borrowing managed by it so far.

A critical point needs mention here. The Centre has a notified a list of public financial institutions, which alone can raise cheap funds from these agencies. KFC and KPIFC are the only two companies from Kerala that feature in that list.

Asked if the troubles in the NBFC market are of concern, Kaushik said it is mainly the private sector NBFCs that have been in trouble. “If KFC’s subsidiary is an NBFC, then that is 100 per cent Government of Kerala-promoted NBFC.”

KFC can now think of funding good infrastructure projects through the NBFC; it otherwise has a limitation on exposure to a maximum loan of ₹20 crore, as per the SFCs Act.

KFC had tried to get converted to an NBFC even earlier. But this is cumbersome, and would need approvals from the Centre as well as the Reserve Bank. Also, the protection to KFC by virtue of SFCs Act would be lost.