KIIFB leaves Kerala with obligations of around Rs 56,000 crore

T'puram: Kerala Infrastructure Investment Fund Board (KIIFB), the flagship infrastructure financing vehicle created by the LDF govt in 1999, now leaves Kerala with obligations of around Rs 56,000 crore after a comptroller and auditor general (CAG) ruling effectively classified its borrowings as state borrowings, according to the White Paper on Kerala’s finances tabled in the assembly on Thursday.

The chapter on KIIFB in the White Paper says the institution was conceived as a professionally managed, market-facing infrastructure financier that could mobilise resources outside the state’s budgetary framework and borrowing limits. However, it concludes that the institution’s “fundamental premise has been undermined” following the CAG audit of its 2024-25 accounts.

As of March 31, 2026, KIIFB received total inflows of Rs 74,171 crore, including govt contributions of Rs 26,497 crore, borrowings of Rs 42,053 crore, project repayments of Rs 3,700 crore and other income of Rs 1,920 crore.

The report notes that the govt contributed an average of around Rs 3,000 crore annually over the last nine years. The most significant source of funding was the diversion of 50% cent of motor vehicle tax collections, which alone contributed Rs 3,300 crore during 2025-26.

Of the Rs 42,053 crore borrowed by KIIFB, less than Rs 10,000 crore has been repaid. The finance cost has already reached Rs 10,198 crore, almost equal to the principal repaid. While KIIFB still holds a fund balance of around Rs 11,000 crore, the report estimates an unmet loan liability of around Rs 21,000 crore that will ultimately have to be serviced by the state.

The report further notes that projects approved through KIIFB exceed Rs 1 lakh crore. Completed projects account for Rs 25,000 crore while payments made total Rs 41,610 crore. However, projects costing around Rs 35,000 crore remain to be funded.

“Combined with the unmet loan liability of Rs 21,000 crore, the state faces a total obligation of approximately Rs 56,000 crore to repay outstanding loans and fund already-approved projects — before accounting for ongoing financing costs,” the report states.

The report identifies the CAG audit of KIIFB’s 2024-25 accounts as the most consequential development in the history of the institution. The audit concluded that KIIFB’s debt is serviced through budgetary allocations from the consolidated fund of the state rather than from its own independent revenues. Since KIIFB lacks a sufficient independent revenue base, its debt is effectively state debt and must therefore be considered while determining Kerala’s borrowing ceiling.

“This ruling strikes at the foundational rationale for KIIFB,” the report says. “If KIIFB’s borrowings count against the state’s borrowing limit, then the entire off-budget mechanism loses its purpose.” The report argues that KIIFB can no longer provide additional fiscal space and can only redirect borrowings that the state itself could have undertaken directly and at a lower cost.

According to the report, KIIFB’s borrowing costs were consistently higher than those of the state govt, often by one or two percentage points. On a borrowing portfolio of over Rs 42,000 crore, even a one-percentage-point difference translates into an additional annual interest burden of around Rs 420 crore. “The argument that KIIFB saves money through cheaper borrowing is simply not maintainable based on the evidence,” the report says.

The report also raises concerns about how projects were distributed across districts and sectors. Kannur alone accounted for over 20% of approved project amounts and 19% of payments released. Thiruvananthapuram accounted for 17% and Ernakulam around 11%. Together, the three districts absorbed nearly half of all KIIFB allocations.

“These distributional patterns suggest that project selection has followed political and administrative channels rather than a systematic infrastructure gap assessment,” the report states.

The report further flags a series of governance concerns. These include the conferral of ex-officio secretary powers on the KIIFB CEO under the 2016 Act, despite such an arrangement not being permitted under the state’s Rules of Business. The report notes that this structural irregularity was corrected only in 2025.

Questions have also been raised about the cost of raising KIIFB’s Masala Bond, which exceeded Rs 11 crore. Auditors reportedly found that supporting documents related to certain payments were not made available for scrutiny. The report also points to consultancy payments routed through the CMD mechanism whose terms were not entirely transparent.

The White Paper recommends a forensic audit covering Masala Bond issuance costs, consultancy payments and instances where borrowed funds were deposited back with banks, resulting in avoidable costs. The report also calls for amendments to the KIIFB Act, 2016, while retaining and integrating KIIFB’s institutional strengths in project appraisal, infrastructure monitoring, climate-resilient infrastructure and digital management systems within govt departments.