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SFCs, State Financial Cooperation

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SFCs, State Financial Cooperation

  1. 1. State Financial Corporations (SFCs) – Anshita Tiwari – B.B.A. 5th Sem.
  2. 2. About SFCs  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.
  3. 3. Objectives  To establish uniformity in regional industries.  To provide incentives to new industries.  To bring efficiency in regional industrial units.
  4. 4.  To provide finance to small scale, medium sized and cottage industries in the state.  To develop regional financial resources.
  5. 5. Functions  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 twenty years.
  6. 6.  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.
  7. 7.  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.
  8. 8. Prohibited Functions:  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 years.  Not to accept deposits exceeding the paid-up capital.
  9. 9.  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.
  10. 10. Management  State Financial Corporations of every state is Governed by a board of directors consisting of 18 directors in all, duly elected and nominated.  SHARE CAPITAL: 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.
  11. 11.  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.  PUBLIC DEPOSITS: 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.  Other Sources: Borrowings from the State Government and the RBI.
  12. 12. Critical Evaluation 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-  Inadequate assistance.  Undue delay in sanctioning and disbursing loans.  Indifferent attitude towards new business enterprise.
  13. 13.  Absence of financial technical experts.  Speed of progress is quite low.  Complex working procedure and full of unnecessary and unwanted formalities.  Shortage of requisite capital.
  14. 14.  Difference between loans and sanctioned and disbursement is quite large.  Lack of requisite training facilities to employees.  Inadequate underwriting.
  15. 15. At Present  There are 18 SFCs in India.  Out of which 17 were established under SFC Act 1951.  Tamil Nadu industrial corporation limited established under company act 1949 is also working as state financial corporation.
  16. 16. THANK YOU…

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