CHAPTER 1

INTRODUCTION

1
INTRODUCTION

The term bank is either derived from old Italian word banca or from a French word banque both
mean a Bench or money exchange table. In olden days, European money lenders or money
changers used to display (show) coins of different countries in big heaps (quantity) on benches or
tables for the purpose of lending or exchanging.

The history of banking began with the first prototype banks which were the merchants of the world,
who gave grain loans to farmers and traders who carried goods between cities. This was around
2000 BC in Assyria, India and Sumeria.

Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the
backbone of modern business. Development of any country mainly depends upon the banking
system

A bank is a financial institution which deals with deposits and advances and other related services.
It receives money from those who want to save in the form of deposits and it lends money to those
who need it.

MEANING AND DEFINITION OF BANK

A bank is a financial institution licensed to receive deposits and make loans. Banks may also
provide financial services such as wealth management, currency exchange, and safe deposit boxes.
There are several different kinds of banks including retail banks, commercial or corporate banks,
and investment banks.

2
Oxford Dictionary defines a bank as "an establishment for custody of money, which it pays out on
customer's order."

FEATURES OF A BANK

➢ DEALING IN MONEY

Bank is a financial institution which deals with other people's money i.e. money
given by depositors.

➢ INDIVIDUAL /FIRM/ COMPANY

A bank may be a person, firm or a company. A banking company means a company

which is in the business of banking.

➢ ACCEPTANCE OF DEPOSIT

A bank accepts money from the people in the form of deposits which are usually
repayable on demand or after the expiry of a fixed period. It gives safety to the
deposits of its customers. It also acts as a custodian of funds of its customers.

➢ GIVING ADVANCES

A bank lends out money in the form of loans to those who require it for different
purposes.

3
 ➢ PAYMENT AND WITHDRAWAL

A bank provides easy payment and withdrawal facility to its customers in the form
of cheques and drafts, It also brings bank money in circulation. This money is in the
form of cheques, drafts, etc.

➢ AGENCY AND UTILITY SERVICES

A bank provides various banking facilities to its customers. They include general
utility services and agency services.

➢ PROFIT AND SERVICE ORIENTATION

A bank is a profit seeking institution having service oriented approach.

➢ EVER INCREASING FUNCTIONS

Banking is an evolutionary concept. There is continuous expansion and

diversification as regards the functions, services and activities of a bank.

➢ CONNECTING LINK

4
A bank acts as a connecting link between borrowers and lenders of money. Banks
collect money from those who have surplus money and give the same to those who
are in need of money.

➢ BANKING BUSINESS

A bank's main activity should be to do business of banking which should not be

subsidiary to any other business.

➢ NAME IDENTITY

A bank should always add the word "bank" to its name to enable people to know that
it is a bank and that it is dealing in money.

TYPES OF BANKS

❖ Retail banks are probably the banks you’re most familiar with. Your
checking and savings accounts are often kept with a retail bank, which focuses
on consumers (or the general public) as customers. These banks offer
loans and may provide credit cards, and they’re the ones with numerous
branch locations in populated areas.

5
❖ Commercial banks focus on business customers. Businesses need checking
accounts just like individuals do. But they also need complex services, and
the dollar amounts (and the number of transactions) can be substantial.
Commercial banks, which are also called business banks or corporate banks,
manage payments for customers, provide lines of credit to manage cash flow,
and offer foreign exchange services for companies that do business overseas.

❖ Investment banks help businesses raise capital in financial markets. If a

company wants to go public or sell debt to investors, it often uses
an investment bank. This kind of bank also may advise corporations on
mergers and acquisitions.

❖ Private banks provide services exclusively to wealthy clients, usually those

with at least $1 million of net worth. They help clients manage their wealth,
provide tax advice, and set up trusts to avoid taxes when leaving money to
descendants.

❖ Central banks manage the monetary system for a government. For example,
the Federal Reserve is the U.S. central bank responsible for supervising banks
and setting monetary policy to control inflation, reduce unemployment, and
provide for moderate lending rates.

❖ Credit unions are similar to banks, but they are not-for-profit organizations
owned by their customers. (Investors own most banks.) Credit unions offer
products and services more or less identical to retail banks. The main

6
 difference is that credit union members share some characteristic in
common—where they live, their occupation, or an organization they belong
to, for example.

❖ Online banks operate entirely online; there are no physical branch locations
available to visit with a teller or personal banker. Many brick-and-mortar
banks also offer online services, such as the ability to view accounts and pay
bills online, but internet-only banks are different. Internet banks often offer
competitive rates on savings accounts, and they’re especially likely to offer
free checking.

❖ Mutual banks are similar to credit unions because they are owned by
members (or customers) instead of outside investors. Also like credit unions,
they tend to be active in only a single community.

❖ Savings and loans are less prevalent than they used to be, but they are still
important. This type of bank helped make homeownership mainstream, using
savings deposits from customers to fund home loans. The name savings and
loan is derived from that core activity.

FUNCTIONS OF BANK

❖ Issuing letters of credit, traveller’s cheque, etc.

❖ Undertaking safe custody of valuables, important documents, and securities
by providing safe deposit vaults or lockers.
❖ Providing customers with facilities of foreign exchange dealings

7
 ❖ Underwriting of shares and debentures
❖ Dealing in foreign exchanges
❖ Social Welfare programmes
❖ Project reports
❖ Standing guarantee on behalf of its customers, etc.

MICRO FINANCE

Muhammad Yunus a Nobel Prize winner, introduced the concept of Microfinance in

Bangladesh in the form of the "Grameen Page 3 80 Bank". NABARD took this idea
and started concept of Micro Finance in India.

MEANING

Microfinance is a banking service provided to unemployed or low-income

individuals or groups who otherwise would have no other access
to financial services. Microfinance allows people to take on reasonable small
business loans safely, and in a manner that is consistent with
ethical lending practices

Microfinance, also called microcredit, is a type of banking service provided to

unemployed or low-income individuals or groups who otherwise would have no
other access to financial services.The goal of microfinance is to ultimately give
impoverished people an opportunity to become self-sufficient.

8
FEATURES OF MICROFINANCE

➢ The borrowers are generally from low income backgrounds.

➢ Loans availed under microfinance are usually of small amount, i.e., micro
loans.

➢ The loan tenure is short.

➢ Microfinance loans do not require any collateral.

➢ These loans are usually repaid at higher frequencies.

DIFFERENT TYPES OF MICROFINANCE INSTITUTIONS IN INDIA

The microfinance models are developed in order to cope with the financial
challenges in financially backward areas. There are various types of microfinance
companies operating in India.

➢ Joint Liability Group (JLG)

Joint Liability Group can be explained as the informal group consists of 4-10
individuals who try to avail loans against mutual guarantee from banks for the
purpose of agricultural and allied activities. This category generally consists of
tenants, farmers and other rural workers. They work primarily for lending
purposes, although they also offer the savings facility. In this type of institution
every individual of a borrowing group is equally liable for the credit (Singh,
2010). This kind of institution is simple in nature and requires little or no financial
administration (UBI, no date).

However, one of the serious problems of this structure is personal preferences in

lending credit which resulted in a partial failure of the system. Of late due to

9
various promotional initiatives taken by banks such as Indian bank, Karur Vysya
Bank and Indian Overseas Bank, the credibility of Joint Liability Group model
has received a boost (The Hindu, 2016). It still remains a landmark movement in
the area of protection of farmer’s land ownership rights.

➢ Self Help Group (SHG)

Self Help Group is a type of formal or informal group consisting of small

entrepreneurs with similar kind of socio-economic backgrounds. Such individuals
temporarily come together and generate a common fund to meet the emergency
needs of their business. These groups are generally non-profit organizations. The
group assumes the responsibility of debt recovery. The advantage of this micro-
lending system is that there is no need for collateral. Interest rates are also
generally low and fixed especially for women (Chowdhury, 2013; Business
Standard, 2017). In addition various tie-ups of banks with SHGs have been
implemented for the hope of better financial inclusion in rural areas (Jayadev and
Rao, 2012).

One of the most important ones is NABARD SHG linkage program where many
self-help groups can borrow credit from bank once they successfully present a
track record of regular repayments of their borrowers. It has been very successful
especially in Andhra Pradesh, Tamil Nadu, Kerala and Karnataka and during the
year of 2005-06. These states received approximately 60% of SGH linkage credit
(Taruna and Yadav, 2016).

➢ The Grameen Bank Model

Grameen Model was introduced by the Nobel laureate Prof. Muhammad Yunus
in Bangladesh during 1970s. It has been widely adopted in India in the form

10
of Regional Rural Banks (RRB). The goal of this system has been the overall
development of the rural economy which generally consists of financially
backward classes. But this model has not been fully successful in India as rural
credit and system of recovery are a real problem. Huge amount of non-performing
assets also led to failure of these regional banks (Shastri, 2009). Compared to this
model Self Help Groups have been more successful as they are more suited to the
population density of India and far more sustainable (Dash, 2013).

➢ Rural Cooperatives

Rural Cooperatives in India were set up during the time of independence by the
government. They used the mechanism to pool the resources of people with
relatively small means and provide financial services. Due to their complex
monitoring structure, their success has been limited. In addition, this system only
catered to the credit-worthy individuals of rural areas, not covering a large part
of the country’s financially backward section (Rajendran, 2012)

ROLE OF BANKS AND MICRO FINANCE IN ECONOMIC

DEVELOPMENT

microfinance is a way to promote economic development, employment and growth

through the support of micro-entrepreneurs and small businesses; for others it is a
way for the poor to manage their finances more effectively and take advantage of
economic opportunities while managing the risks.

microfinance is one of the better tool for poverty alleviation, economic growth
and development in emerging economies. Loans offer the same benefits to major
world economies that face growth problems.

11
Microfinance is generally seen as a way to fix credit markets and unleash the
productive capacities of poor people who are dependent on self-employment.

Microfinance in India plays a major role in the development of India. It act as an

anti-poverty vaccine for the people living in rural areas. It aims at assisting
communities of the economically excluded to achieve greater level of asset creation
and income security at the household and community level

Microfinance is not impervious to impact of the global financial crisis. Instead, we

realize that loans can help lower-income group’s setup and grow the small
businesses, which generate income and employment that helps their communities
and their economies. Microfinance lenders provide small loans to current and
aspiring small business owners.

CHAPTER 2

INDUSTRY PROFILE

12
INTRODUCTION

KSFE is a Miscellaneous Non Banking Financial company. A Non-banking Financial Company

(NBFC) is a company registered under the Companies Aet, 1956and is engaged in the business of
loans and advances, acquisition of hares /stocks/ bonds/ debenture issued hy Government or local
authority or other securities of like marketable nature. leasing, hirepurchase, insurance business,
chit business but does not include any institution whose principal business is that of agriculture
activity, industrial activity, sale/ purchase,' construction of immovable property, A non,bankinp
institution which is a company and which has its principal business of receiving deposits under
any scheme or arrangement or any other manner, or lending in any manner is also anon-banking
financial company

NBFC are doing functions as in to that ofbanksu however there are a few differences-

13
 NBFC cannot accept demand deposits. (Demand deposits are funds deposited at a
depository institution that are payable on demand Immediately or within a very short
period. )
It is not apart ofthe payment and settlement system and as sueh unnot issue cheques to its
customerse
Deposit insurance facility of DICGC is not available for NBFC depositors un like in case
of banks,

Chit companies as defined in clause (b) of Section 2 ofthe Chit Funds Act, They are regulated by
respective state governments.

While making deposits with a NBFC, the following aspects should bc borne in mind:

Public deposits are unsecured.

Il, A proper depos ii receipt which should, besides the name of the depositor's state the dateof
cL•posit. the amount in words and tigures, latc of interest payable and the claie of ma
turiiy should be insisted. The receipt shall be duly signed byan officer authorized by the
company in that behalf

Ill. The Reserve Bank Of India does not any responsibility or guaran tee abou I the present
position as to thc financial soundness ofthe company or for the correctn ess of any of
the statements or representations made or opinions expressed by the company and for
repayment of deposits/discharge of ihc liabilities by the company,

Non- Banking Financial Company (NBFC)

Definition:

14
A non-banking financial company is that financial institution which
provides the banking services to the customers without having a banking
license. An NBFC needs to be compulsorily registered under the
Companies Act 1956 however, it can be owned privately or by the
government.

ROLE OF A NON BANKING FINANCIAL COMPANY

A Non-banking institution that is a company whose principal business is the
receiving of deposits A Non Banking Financial Company supplement banks
by providing the infrastructure to allocate surplus resources to individuals and
companies with deficits.

ADVANTAGES OF NON BANKING COMPANIES

A.
1: The Application Process Is Much Simpler

Bank loan applications can take months. You have to jump through hoops and fill
out endless paperwork. But non-bank business finance providers usually have simple
application processes, so it’s no wonder people are turning away from bank loans.
Most alternative finance applications involve a few simple forms, which can be filled
out online. As a result, there are no unnecessary appointments or endless letters back
and forth. Instead, communication can be done over the phone – or in some cases –
through email.

15
2: Credit Requirements Are More Relaxed

Bank loans often focus on your credit score and will rarely lend to new businesses
without several years of accounts. But the eligibility criteria is much less strict with
alternative providers. They take into account more than just your credit score, and
applications are often reviewed on a case by case basis.
Many providers specialise in providing finance to those with subpar credit scores or
new businesses without an extensive financial history.

Because non-bank business finance is generally easier to qualify for, alternative

finance providers give more people the chance to succeed on their own terms.

3: Get Fast Access to Funds

Previously, it’s always been the norm for business finance to take weeks, or
sometimes even months, to come through. But alternative providers are usually
much quicker. Your application will be reviewed pretty much straight away, and if
you’re approved for finance, you’ll have access to it in a matter of days.

So if you need business finance – and you want it as soon as possible – non-bank
financing is the way to go.

4: You Decide How To Spend Your Funds

Banks often lay out strict rules for how loans should be spent, especially for small
businesses and start-ups. But by going with an alternative provider, you’ll usually
have the freedom to use the finance how you see fit. The funds are for you to grow
your business — how you go about that is up to you.

16
It’s worth bearing in mind, though, that some types of finance may require you to
use the funds in a certain way. For example, if you apply for order financing, you’ll
need to use the money to fund orders. So it’s worth thinking about what type of
funding you’re after: a standard business loan or a specific financial package based
on your company needs.

5: Non-Bank Business Finance Is Often More Flexible

While banks are quite rigid with the types of finance they offer and how loans are
repaid, alternative providers offer more flexible solutions.

Non-bank business finance often has the option of extended repayment periods, so
the monthly repayment is more manageable. This not only makes business finance
easy to manage, but it also improves cash flow – which is going to help make your
business more financially stable.
Non-bank lenders can also be more flexible regarding what type of finance product
they offer you. From supplier finance to sales finance, there are different options to
choose from if you need to finance a particular business process. Some lenders will
even allow you to combine

NON BANKING FINANCIAL COMPANY (NBFC)

Definition: A non-banking financial company is that financial institution which

provides the banking services to the customers without having a banking license. An
NBFC needs to be compulsorily registered under the Companies Act 1956 however,
it can be owned privately or by the government.

OBJECTIVES OF NBFCS

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NBFCs serve the financial needs of individual customers as well as business
organizations.The various other purposes of the non banking financial companies
are follows:

❖ NBFCs thrive to create more job opportunities in the country by lending loans to
private industries, which increases the demand for manpower, eventually creating
employment opportunities.

❖ NBFCs help in mobilizing funds by the distribution of money which leads to

income regulation, thereby shaping economic development of the country.

❖ NBFCs aim to strengthen the financial markets as it provides funds to the SMEs

TYPES O F NBFCs

There are different types of NBFCs fulfilling multiple objectives of the investors and
the borrowers. These are as follows:

18
• Borrower’s Evaluation: NBFCs usually verify the credibility of the customer
by going through the credit scores and business history of the companies.
Thus, making the loans more reliable.
• Unsecured Loans: These financial companies also provide unsecured loans
which let the borrower to avail loans without mortgaging any asset or
property.
• Lenient Credit Condition: NBFCs offer loans to customers at easy terms and
fewer formalities, making it suitable for small business enterprises.

19
 • Facilitates Small Loans: Usually, banks provide high-value business loans,
but NBFCs also entertain the smallest of the credit to meet the customer’s
needs.

DRAW BACK OF NBFCs

There are certain limitations which differentiate an NBFC from a bank. These
drawbacks are discussed below

• Cannot Accept Demand Deposits:

Since NBFCs lies within the dimension of commercial banks and therefore,
they are not liable to accept demand deposits.

• No Deposit Insurance Facility:

The depositor cannot avail any insurance facility on the sum deposited with
the NBFCs.This is because such financial organizations are not covered under
the regulations of Deposit Insurance and Credit Guarantee Corporation.

• Cannot Issue Cheques Drawn on Itself:

The country’s payment and settlement system do not cover NBFCs. Thus, not
letting them issue the cheques drawn on itself.

20
 CHAPTER 3

COMPANY PROFILE

21
 KSFE

TYPE PUBLIC SECTOR

OWNED BY GOVT. OF KERALA

FOUNDED BY : 6th NOV. 1969

HEAD OFFICE TRISSUR

NO. OF BRANCHES ABOVE 415

CHAIRMAN P.T.JOSE

MANAGING DIRECTOR P.RAJENDRAN

INDUSTRY FINANCE

PAID up CAPITAL 20 CRORES COVERED

BUSINES TURNOVER 15000 CRORES

EMPLOYEES 5100 ABOVE

22
HISTORY OF THE COMPANY

During the year 1967 Government or Kerala took a policy decision to the effect that Chitties Kulies
should be conducted under State auspices. The then Finance Minister In his budget speech for
financial year 1967-63 made the following announcement on the floor of the Assembly;
+1 view this decision as a bold step forward along the path towards socialism, aimed at bringing
banks and other financial institutiolus under social control".

uThe Chitty.Kuri business being what it is, there existed ample scope for exploitation of the
ignorance, indifference and gullibility of the needy people by unscrupulous promoters, who
organized financial institutions in the name of chitty/ kuri fund in order to mobilize fluid resources
in their own interest and appropriate far themselves substantial profit accrued out of such
organizations. Government wanted to introduce a check on the unbridled growth of such financial
institutions with a view to safeguard the interest of the general public and at the same time to
channelize the savings so consolidated for productive purposes.

With _these objectives, Government appointed a Special Officer in the year 1967 to prepare a
comprehensive scheme for starting chitiics and under Government control, The Special Officer
presented his report on 7th October [907 analyzing all aspects involved in the proposal and
recommending strongly the entry of Government in the field of and kuries. Though the
recommendation was for conducting the business as an adjunct of the Registration Department;
Government, however, took a different view and decided to bring within the purvicnv of
Government control not only chitties/kuries but also some other financial transactions for which
socialization was felt necessary

I-lire purchase financing and insurance were the new areas suggested for inclusion within the ambit
of the proposed Organization. Accordingly, Government decided to organize a public sector
undertaking with the name 'The Kerala State Financial Enterprises Limited' the purpose
ofconducting Chitty, Hire Purchase and Insurance business under Government control. The Kerala
State Financial Enterprises Limited is fully owned by the Government of Kerala and is the first

23
Public Sector Company io conduct chit business in the whole of India. It was incorporated on 6th
November 1969 with its registered office at Trichur. It has an authorized capital of Rs,25 lakhs
divided into 25,000 equity shares of Rs, 100 each and a paid up capital of Rs,2 lakhs as initial
contribution from Government of Kerala. The share capital contribution of Governm•nt was
progressively increased from Rs,2 lakhs co Rs,7 lakhs in year 1970-71, toRs.12 lakhs in the
year 1971-72, to Rs.15.5 lakhs in the year 1972-73, to Rs,20.51akhs in the year 1973-74, to Rs.27
lakhs in the year 1974-75, to Rs,28 lakhs in ibe year 1977-78 and to Rs.38 lakhs in the year 1987-
88. The authorized capital was raised to Rs.50 lakhs in the year 1974-75 and io Rs, 100 lakhs in
the year 1989-90.The Management of ibe company is vested in the Board of Directors constituted
by Governor from time to lime. The number of Directors shall not be less than 2and shall not be
more than 9. The maximum number has been subsequently raised to 15.

The Directors shall hold office during the pleasure of the Governor. The Governor may. from time
to time, appoint 2 Directors other than ihc Managing Director as Chairmul and Vice Chairman
ofthe Board, The first Board was constituted as per Government Order No, (RT) 4876/69}Fin.
Dated 26ibNovenber 1969 and they assumed charge on 28th November 1969. The Managing
Director is appointed by the Governor on such terms and remuneration as he may think lit from
among ihc Directors for the conduci and Management of the business of the company subject to
the control and supervision of the Board of Directors. General Body representing the shareholders
shall be ibe supreme governing body ofihe Company

ORGIN OF KSFE

In 1967, The Government of Kerala took a policy decision to the effect that Chitties should be
conducted under state auspices as a means for the collection of small savings. The then Finance
Minister, in his budget speech for the financial year 1967-68 made the following announcement
on the floor of the Kerala Assembly. "I view this decision as a bold step forward along the path
towards socialism, aimed at bringing banks and other financial institutions under social control".
As the follow-up, the Government of Kerala, appointed a Special Officer in the year 1967, to
look into the feasibility and desirability of starting Chit Funds in the public sector and also to
prepare a comprehensive scheme for starting Chits under government control. One of the

24
objectives of starting Chit Funds in the public sector was to control the mushroom growth of
private Chit Funds and to restrain their growth by offering effective competition. The Special
Officer, who presented his Report on 7th October 1967, recommended strongly the entry of the
Government into the field of Chits. Though the recommendation was for conducting Chit as an
adjunct of the Registration Department, the Government took a different view and decided to
bring within its purview and control, not only Chitties or Kuries, but also certain other financial
transactions for which socialization was felt necessary. Accordingly the Government decided to
organize a public sector undertaking with the name "The Kerala State Financial Enterprises Ltd."
(KSFE) for the purpose of conducting Chits, hire purchase and insurance business under
Government control. This apart, the Government of Kerala had a progressive vision for
generating non-revenue income through such public sector ventures.

Thus, KSFE Ltd. was incorporated as a Government Company on 6th November 1969 with its Head Office
at Trichur with the objective of serving as a discipline factor to private Chit Funds". The first Board of Directors
was constituted as per G.O. (Rt.) 4876/69/Fin dated 26th November 1969. KSFE comes under the group of
Miscellaneous Non-Banking Financial Intermediaries. KSFE has the unique status of being the only public sector
undertaking in India, which runs Chits and also one of the few profit making companies owned by the
Government of Kerala

OBJECTIVES OF KSFE

The following are the important objectives

• To start, conduct, promote, manage and carry on the business of chitties in India or
elsewhere.
• To promote, undertake, organize, conduct and carry on the business of general and
miscellaneous insurance of any kind in India or elsewhere
• To start, promote, conduct, operate, carry on and manage the business of dealers agents
and traders under hire purchase system of articles, vehicles, machinery, materials goods
and tools of all capital goods and consumer goods and property of all nature and

25
 description for personal, domestic, office, commercial, industrial and community use and
consumption as a business of the company or as agents of government, state or central,
or anybody or organization there under or any other company.

MISSION OF KSFE

The mission of KSFE Ltd is well being of public by its different products like
chitties, loans, deposits etc. for the welfare of the society. The chitties are come under the
Kerala Chitties Act 1975, which brought into force with effect from 25th august 1975. The
act is to give adequacy and safety to the funds of the society and gave good returns to
them. It also ensures lesser rate of interest for loans and advances.

VISION OF KSFE

Providing a whole range of quality services and products.

Adopting technology and benchmark standards in customer service and

performance

Spreading our wings beyond the borders of Kerala, on a global level

Retaining the pre-eminent role in Chitty business.

Focus on extending resources to the Govt. of Kerala

Sustaining commitment to the weaker sections of society, as the

neighborhood. institution for support, trust and security

MANAGEMENT OF KSFE LTD

The Management of the company is vested in the Board of Directors constituted by Governor
from time to time. The number of Directors shall not be less than 2 and shall not the more than
9. The maximum number has been subsequently raised to 15. The Directors shall hold office

26
during the pleasure of the Governor. The Governor may, from time to time, appoint 2 Directors
other than the Managing Director as Chairman and Vice Chairman of the Board. The first Board
was constituted as per Government Order No.G.O. (Rt) 4876/69/Fin. Dated 26th November 1969
and they assumed charge on 28th November 1969. The Managing Director is appointed by the
Governor on such terms and remuneration as he may think fit from among the Directors for the
conduct and Management of the business of the company subject to the control and supervision
of the Board of Directors.

FUTURE PLAN OF KSFE

1. Centralized Chitty Registration.

2. Online Chitty Auction.

3. Chitty payments at the Door step of subscribers.

4. Opening Branches outside Kerala.

5. Spreading weekly chitties to all the KSFE branches.

6. e-remittance facilities for all customers.

7. Foray into the field of M-commerce.

8. Introducing ATM facilities and any time anywhere transaction facilities.

9. Implementation of core solutions software in the company.

10. Going for CRISIL rating to obtain FAAA.

27
 11. Undertaking trading of Gold.

GROWTH OF THE BUSINESS

Business(in 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019- 2020-
crores) 13 14 15 16 17 18 19 20 21
Chitty 1451 1595 1647 1691 1787 1993 2570 3642 6183
Turnover
Advances 540 480 648 1026 1284 1572
Total 121* 1430 1432 1304 1566 1697 1866 2240 2945
Deposit
Aggregate 3209 3535 3559 3553 4001 4541 5462 7166 10700
Business

28
 Aggregate

Total
Deposit

Advances

Chitty
Turnover

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

29
 CHAPTER 4

INTRODUCTION OF THE
STUDY

30
1.INTRODUCTION

The study entitled “Financial Performance Analysis of Kerala State Financial Enterprises Limited,
Thrissur” has been oriented with a view to study the financial position of the company that helps
in making sound decision by analyzing the recent trend.

Finance is defined as the provision of money at the time when it is required. Every enterprise,
whether big, medium, or small, needs finance to carry on its operations and to achieve its targets.
In fact, finance is so indispensable today that it is rightly said to be the lifeblood of an enterprise.
Without adequate finance, no

enterprises can possibly accomplish its objectives. Finance refers to the management of flow of
money through an organization.

Financial management refers to that part of the management activity which is concerned with the
planning and controlling of firm’s financial resources. It deals with finding out various sources for
raising funds for the firms.

Financial performance analysis means establishing relationship between the items in the balance
sheet and profit and loss account for determining the financial strength and weakness of the firm.
It is the process of scanning of the financial statements to judge profitability, solvency, stability,
growth and prosperity of a firm.

2. OBJECTIVES OF THE STUDY

❖ To study the financial position and financial performance of the company.

❖ To judge the solvency of the firm.
❖ To determine the long term liquidity of the funds.
❖ To provide valuable suggestions and recommendations for the

31
 improvement of current financial management.

3. RESEARCH METHODOLOGY

Secondary Data

The secondary data is collected from annual report of the company of the last 5 years from 2015-
16 to 2020-21

4. SCOPE OF THE STUDY

The study was carried at The Kerala State Financial Enterprises Limited, Thrissur analyze its
financial performance on the past five years.The study aims to analyze the liquidity, profitability,
solvency position of the company. Liquidity ratios like current ratio, quick ratio etc is prepared to
analyze the financial positionof the company. Profitability of the company is found out by using
ratios like return on net profit ratio, return on capital employed ratio etc. The changes can be
observed by comparison of the balance sheet at the beginning and at the end of a period and these
changes can help in forming an opinion about the progress of an enterprise

5. LIMITATIONS OF THE STUDY

❖ The period considered for the study is the last 5 years’ financial statement only. So it is
not possible to find out the life time performance of the company.
❖ Figures are rounded off whenever it was necessary.
❖ The study is made exclusively on the financial aspects of the company.
❖ Most of the information is collected from the financial statements. So the limitations of
financial statements may affect the study.
❖ Non-monetary factors like human behavior, their relationship etc are not considered.

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Millions of titles at

CHAPTER 5

TOPIC OF THE STUDY

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INTRODUCTION

The study entitled “Financial Performance Analysis of Kerala State Financial

Enterprises Limited, Thrissur” has been oriented with a view to study the financial
position of the company that helps in making sound decision by analyzing the recent
trend.Analyzing financial performance is the process of evaluating the common
parts of financial statements to obtain a better understanding of firm’s position and
performance. Financial performance analysis enables the investors and creditors
evaluate past and current performance and financial position, and to predict future
performance.Financial statement is used to judge the profitability and financial
soundness of a firm. In this study, an attempt is made to identify the financial
strength and weakness of the firm by properly establishing relationship between the
items in the balance sheet and profit and loss account of KSFE Ltd., Thrissur.

Chitty

Chitty is the main product of KSFE.It is a unique financial product, which blends
the advantages of both investment and advance. It is a risk free safe haven for the
public as KSFE conducts chitties, fully governed by the provisions of Central Chit
Fund Act 1982 only. Installment per month for chitties range from Rs. 1,000 to Rs.
6,00,000 and the usual duration of chitties range from 30 months to 120 months.

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KSFE conducts normal chitties (Single division) and division chitties (usually called
Multidivision chitty or Narukku Lela chitty).

Main Features of KSFE Chitties

The total of the periodic subscription is called the chitty Sala. The number of
subscribers (Chittals ) in a chitty will be equal to duration of chitty in months ( in
the case of single division chitty). Auction will be conducted every month to choose
one Chittalan(Subscriber of the chitty) who bids the chitty for the maximum discount
and that person will be given Prize Amount. In the case of Multi Division Chitty the
number of persons prized in each month will be equal to number of divisions. The
maximum discount possible is 30% in the case of single division chitties. For Multi
Division Chitty, maximum discount possible is 30%, 35% or 40% depending on the
duration of the chitty. Multi Division Chitty having more than 100 month duration
can be auctioned up to a discount of 40 % ,while chitties having duration from 60
months to 99 months can be auctioned up to a discount 35% and chitties with
duration less than 60 can be auctioned up to a discount 30 % . As per the prevailing
Chitty Act, if there are more than one subscriber interested in bidding for maximum
discount , the Chittal numbers of the such bidders will be put to draw to select the
bidder for the month. If no subscriber is willing to bid the chitty for maximum
discount, auction will begin from Foreman commission and the subscriber who bids
for maximum discount will win the auction.

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What is the benefit of KSFE chitty?

KSFE chitty is a unique financial product with advantages of both investment and
advance. KSFE chitty schemes are risk-free as they are fully governed by the
provisions of the Central Chit Fund Act 1982. … The monthly instalment for KSFE
chitties is in the range of ₹1,000 to ₹5,00,000.

DIFFERENT TYPES OF CHITTIES

❖ Long Term chitty

Long Term chitties are investment chitties. Duration of these chitties start from 60
months to maximum 120 months. Long term chitties are more beneficial to
customers who wishes to invest, as they get high profit as dividend. Preplanned long
term chitties help the common customers to satisfy their needs instead of loans and
other schemes. It is a safe way to make large amount of money for future needs by
paying small installment amount .

❖ Short Term Chitty

KSFE conducts chitties of different durations. Short term chitties ranging from 30
months to 60 months duration are appropriate for subscribers who need the prize
money immediately, as there will not be more customers for bidding the chitty for
maximum discount and hence better chance for bidding chitty early and the
subscribers can auction the chitty for an optimum amount to meet their emergencies.

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 ❖ Multidivision Chitty

At present most common Multidivision chit in KSFE consists of one lot and three
auctions in a month. The uniqueness of this chitt is that each Non-Prized subscriber
will get a chance every month to get full amount of prize money after deducting
foreman commission and the remaining non-prized subscribers will have the
opportunity to participate in 3 auctions. The total discount excluding foreman
commission received from all divisions is distributed equally among all subscribers
in the chit. This chitty attracts more customers, as there is a chance of luck to get the
full prize amount through draw as well as they obtain more turns to participate in
auction if they prefer to.This is a good scheme which the customers can opt instead
of loans.

DEPOSIT SCHEMES

❖ Fixed deposit
❖ Short Term Deposi
❖ . Sugama Deposit Scheme
❖ Chitty Security Deposit In Trust

➢ FIXED DEPOSIT

KSFE lets you make fixed deposits with higher interest rates. Fixed deposit scheme
offered by KSFE has many features similar to that of Term Deposits in banks. But
the return offered by KSFE is comparatively higher than that of banks. Interest rate
of deposits from the public is 5.75% per annum, Chitty Prize Money deposit is 6.25%

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and for fresh deposits from senior citizens is 6.25%. The effective returns are higher
since it is possible to withdraw interest monthly for deposits above Rs.10,000

➢ SHORT TERM DEPOSIT

KSFE is collecting Short Term Deposits for periods ranging from 30 days to 364
days offering attractive rates of interest for different slabs. Individuals and
Institutions can prefer this deposit for temporary parking of fund. When compared
to Nationalised and Scheduled Banks, the rates of interest are much higher.
Minimum amount that can be deposited under this scheme is Rs.5,000/-Deposits in
multiples of Rs.500/- will be accepted.

Short Term Deposits will be accepted as security to future liability in chitty and loan
schemes of KSFE. On maturity these deposits can be renewed for a further period at
the then existing rates. Provision is also there for premature closure of these deposits

➢ SUGAMA DEPOSIT SCHEME

One of the best deposit schemes offered by KSFE. Sugama Deposit Scheme, in its
mode of action/procedure, is comparable to the Savings Bank deposits in banks, but
with a higher interest rate. Sugama Scheme is the best in the savings account
category as it is offering an interest rate of 5.5%. Sugama acts as a safe and sound
transaction scheme for automated chitty installment repayment, deposit interest
withdrawals and day-to-day dealings.

The Sugama Security Scheme is intended for accepting amount outstanding in

Sugama Deposits as security towards future liability in chitty and other schemes.
The advantage under this scheme is that the advance will be secured and the monthly

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instalments can be adjusted from the account and at the same time the customers can
enjoy interest income on the Sugama Deposit.

Sugama Security Account is to be opened in the name of the subscriber only either
by depositing the future liability in cash or by transfer. No further remittance by any
mode is allowed in this account. The deposit amount should atleast be the future
liability. However, in the case of combined security the deposit amount can be
limited to the shortage of security of chitty amount.

Rate of interest will be the same as for Sugama Account. (Now 5.5%). The depositor
can withdraw the interest accrued and credited to the account from time to time. He
can withdraw the balance in the account after termination of the liability or on
providing alternate security.

➢ CHITTY SECURITY DEPOSIT IN TRUST

This scheme is specifically designed for the chitty subscribers, which allows the
prized subscriber to deposit the prize money in full/part against future liability
intending to withdraw the same on furnishing adequate alternate security or
repayable on termination of the chitty, provided that the amount deposited under this
scheme should not exceed the future liability in the chitty. The period of deposit is
minimum 30 days from the opening of chitty and maximum till the date of
termination of chitty

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CHAPTER 6
40
 SWOT ANALYSIS

❖ STRENGTH

• Better customer relation.

• Good products and services.
• Reasonable repayment period.
• Better customer satisfaction.
• Government owned Company.
• Variety of services other than chitties.
• Variety of chitty schemes and several other facilities associated with chitties.
• Works similar to banks.
• Branches throughout Kerala.
• Skilled employees selected through public examinations
• A relatively younger work force.
• Transparency in operations.

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• Updated website gives information about new developments in all branches.
• Tie up with insurance and western union money helps to attract more
customers.
• It uses effective advertising campaigns.

❖ WEAKNESS

• Lack of marketing activities.

• Lack of computer knowledge of workers.
• It has the limitations of NBFC’s.
• Still main business area is on chitties and not yet able to grow in other services.
• Lack of fieldwork in marketing.

❖ OPPORTUNITY

• Improve marketing activities.

• Introduce a disaster recovery system.
• Expansion of small-scale industries in the state.
• Rising middle class.
• Rise in income.
• Saving thirst increases.
• Ensuring more participation of NRI families in the schemes of KSFE.
• Developing rural areas provide an opportunity to increase customer base.

❖ THREATS

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• Tough Competition.
• Policies of Reserve Bank.

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CHAPTER 7

FINDINGS &
SUGGESTIONS

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FINDINGS

 KSFE is leading player in chit business in Kerala.

 Security of Data center is not sufficient .
 .Flexibility in schemes according to customer needs.
 Some of the services are unique to KSFE.
 Wide acceptability among middle class.
 It improves saving habit of people.
 Agency system has not yet proven its merit and there seems to be clear
division between agents and company staff.
 Lack of concentrated and coordinated marketing efforts .
 Lack of specific transfer norms and the undue influence of trade unions in
these matters.
 Total absence of modern performance appraisal mechanisms.
 No modern facilities for remittances like e-payment or ECS.
 Absence of effective customer feed back surveys and marketing research

SUGESSTIONS

 Need more branches in rural areas.

 Give much concentration on recovery procedures
 Effective customer feedback mechanisms should be introduced.
 Employee motivation needed.
 More management techniques need to be adopted .
 Introduce a disaster recovery site for data center. That will ensure safety of
data
 Try to introduce new schemes as per customer requirements
.

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 Salary certificates offered by the employees of reputed private firms and the
guarantee provided by the businessmen with PAN card can be accepted at par
with State employees salary certificates.
 Chitty loan scheme should be made more subscriber-friendly by reducing the
rate of interest. In the light ofthe social commitment of the Company, Chit
loan scheme at concession rates of interest should be considered for low-
income subscribers and women and for self-employment programmes.
 Human Resource Development programmes for the staff will enhance
efficiency and enable speedy and better service. It will also help in
maintaining good customer relations.
 Along with its rural branch expansion programme, KSFE must extend its
services and operations to other states in India and plan for starting even
overseas branches.
 KSFE needs to be protected against high politicisation so that the Company
can implement the decisions without delay. Incorporation of professional and
financial experts into the Board of Directors of KSFE, is also desirable.
 The Company should increase its paid up capital. The government itself can
contribute more capital to the Company.
 . KSFE should arrange public awareness campaigns and customer awareness
programmes. Information Bureaus can be opened in important regions and
places. Customer meets could be arranged occasionally. Complaint Book or
Suggestion Box should be provided at every branch.
 A Research and Development wing may be opened at the head-office for the
evaluation, planning and promotion of business. Every scheme should be
evaluated periodically and corrections, if any, introduced immediately.

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CHAPTER 8

CONCLUSION

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 CONCLUSION

The study was conducted to analyze the financial performance of The Kerala State
Financial Enterprises Limited. The present study attempted to discuss the financial
performance of the company. . The analysis of the data has provided major
conclusion that the company is witnessing a lot of risks in the form of competition,
less profitability etc. It would be better for the company to look forward on
modernization and diversification programmes. The company may concentrate more
on chitty based business, accepting deposits, liberalize loans and advances.
Performance of the business.

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