– Anshita Tiwari
– B.B.A. 5th Sem.
The Govt. after independence realised the needs of
creating a financial corporation at the state level for
catering to the needs of industrial entrepreneurs. As a
result, the Govt. of India after consultations with the
state governments and the Reserve Bank of India,
introduced State Finance Corporations Parliament bill in
the Parliament in 1951. SFC Act came into existence with
effect from August 1st, 1952. The Act permitted the State
Government to establish financial corporation’s for the
purpose of promoting industrial development in their
respective states by providing financial assistance to
medium and small scale industries.
To establish uniformity in regional industries.
To provide incentives to new industries.
To bring efficiency in regional industrial units.
To provide finance to small scale, medium sized and
cottage industries in the state.
To develop regional financial resources.
The main function of the SFCs is to provide loans to small
and medium scale industries engaged in the manufacture,
preservation or processing of goods, mining, hotel
industry, generation or distribution of power,
transportation, fishing, assembling, repairing or packaging
articles with the aid of power etc.
Granting loans or advances or subscribing to shares and
debentures of the industrial undertaking repayable within
Guaranteeing loans raised by the industrial concerns
repayable within twenty years.
Underwriting of the shares, bonds and debentures subject
to their disposal in the market within seven years.
Guaranteeing deferred payments for the purchase of
capital goods by industrial concerns within India.
Providing loans for setting up new industrial units as well
as for expansion and modernisation of the existing units.
Discounting the bills of small and medium scale industries.
Not to give loans to an industrial unit exceeding 10% of its
paid-up capital or Rs. 60,000 whichever is lower.
Not to accept public deposits for a period exceeding 5
Not to accept deposits exceeding the paid-up capital.
Not to give loans on the security of its shares.
Not to declare dividend on its shares without sanction of
the Central Government.
Not to purchase shares and stocks directly of an industrial
unit or limited public company.
State Financial Corporations of every state is
Governed by a board of directors consisting of 18
directors in all, duly elected and nominated.
The SFCs can have share capital ranging from Rs. 50 lakhs
to Rs. 5 crores. It can be increased up to Rs. 10 crores
with the prior sanction of the Central Government.
BONDS AND DEBENTUREs:
The SFCs can issue bonds and debentures to a maximum of ten
times the amount of its paid-up capital and reserve fund.
The SFCs can accept public deposits for a maximum period of 5
years. However, the total amount received by way public
deposits should not exceed twice its paid-up capital.
Borrowings from the State Government and the RBI.
It has been alleged that the SFCs are not working in
accordance with the financial needs of the small scale,
medium sizes and cottage industries. The main arguments
against their working are-
Undue delay in sanctioning and disbursing loans.
Indifferent attitude towards new business enterprise.
Absence of financial technical experts.
Speed of progress is quite low.
Complex working procedure and full of unnecessary and
Shortage of requisite capital.
Difference between loans and sanctioned and
disbursement is quite large.
Lack of requisite training facilities to employees.
There are 18 SFCs in India.
Out of which 17 were established under SFC Act
Tamil Nadu industrial corporation limited
established under company act 1949 is also
working as state financial corporation.