State Financial Corporation Presented By Dheeraj.P
Introduction A Central Industrial Finance corporation was set up under the industrial Finance corporations Act, 1948 in order to provide medium and long term credit to industrial undertakings which fall outside normal activities of commercial banks. The State governments expressed their desire that similar corporations be set up in states to supplement the work of the Industrial financial corporation. State governments also expressed that the State corporations be established under a special statue in order to make it possible to incorporate in the constitutions necessary provisions in regard to majority control by the government, guaranteed by the State government in regard to the payment principal. In order to implement the views Expressed by the State governments the State Financial Corporation bill was introduced in the Parliament
Financial Resources Of The Sfc’sThe SFC’s mobilize their financial resources from the following sources1.Their own Share capital2.Income from investment and repayment of loans3.Sale of bonds4.Loans from the IDBI ( To some extent )5.Borrowings from the Reserve Bank of India6.Deposits from the Public7.Loans from State Governments.
Institutions Supporting Small-scale IndustriesCENTRALLEVEL STATE LEVEL• SSI BOARD• KVIC • DIs• SIDO • DICs• NSIC SSIs • SFCs• NSTEDB • SIDCs/SIICs• NPC • SSIDCs• NISIET• NIESBUD• IIE• EDI OTHERS • Industry Association • Non Governmental Organizations • R & D Laboratories
State Financial Corporations (sfcs) The state-level institutions have played an important role in the development of small and medium enterprises in their respective states with the main objectives of financing and promoting these enterprises for achieving balanced regional growth, catalyze investment, generate employment and widen the ownership base of industry. With the liberalization drive getting accelerated, SFC’s future business is likely to face SFCS provides a range of financial services that utilizes sound and dynamic investment decisions to select clients aiming to protect and develop their global wealth. The State Financial Corporations (sfcs) are state-level financial institutions, operating as regional development banks playing a crucial role in the development of small and medium enterprises in the states concerned in tandem with national priorities. There are 18 sfcs in the country, of which 17 were set up under the sfcs Act 1951. Tamil Nadu Industrial Investment Corporation Ltd. Established in 1949 under the Companies Act as Madras Industrial Investment Corporation, also functions as a SFC.
Forms of Assistance The forms of assistance can be broadly classified into direct assistance and indirect assistance. The basic feature of direct assistance is that financial institutions provide funds directly to the project, whereas, in indirect assistance, the financial institutions provide guarantees on behalf of the promoter(s) of the project. Direct assistance Fund based assistance: In this kind of assistance, term loans are provided in both rupees and in foreign currency. Apart from this, funds are provided by subscription to the equity shares of the company. Rupee term loans: Rupee term loans are extended for site, construction, factory and other buildings; purchase of plant and machinery, as well as, for technical know how, preliminary and pre-operative expenses, and margin money for working capital. Generally, the repayment period is five to fifteen years with an initial moratorium of six months.
Foreign currency term loans: Institutions provide term loans in foreign currency to fund the acquisition of fixed assets like plant and machinery, as well as to acquire technical know how from foreign suppliers. Institutions generally ask for a first charge on the assets financed by them, and on all other fixed assets of the borrower, to secure the loans. Subscription to Equity Shares: This form of assistance is available to the project only when institutions are sure that the project is not able to take any more debt, although the proposed venture is worthwhile. It is often a very small part of the project cost. Seed Capital Assistance: This form of assistance is provided by national financial institutions through the State Finance Corporations (sfcs) and the State Industrial Development Corporations (sidcs). All borrowers have to submit their proposals, through their respective sfcs and sidcs. This assistance carries interest as low as one percent, and can be payable on easy terms, subject to the applicability of certain conditions. Risk capital assistance: Risk capital assistance is almost the same as seed capital assistance. It is offered by the IFCI through a society formed under the Society Registration Act. Loans under this scheme are generally interest free and range between Rest. 15-40 lakhs, depending on the number of the promoters and the cost of the project.
Indirect assistance Deferred Payment Guarantee: Financial institutions provide this deferred credit facility to the equipment suppliers on behalf of their clients and charge guarantee commission to the client. Guarantee is provided for the purchase of both indigenous and imported equipment. Most scheduled banks and co-operative banks provide this facility. Guarantee for Foreign Currency Loans: This kind of guarantee is provided to the client as raised term loans from overseas market, directly. Institutions stand guarantee to the borrower, who is yet to establish him in the overseas market or does not have high credit standing. Underwriting: Institutions usually underwrite the public issue of those clients, who have invested in the project cost, through term loans.
CONTD… Bill Rediscounting Scheme: This scheme has been introduced by IDBI to help domestic producers and dealers of capital goods. Under this scheme, deferred payment facility is available for the purchase of machinery in all categories forms of businesses such as proprietary concerns, partnerships, private and public companies, co-operative societies and corporations. Suppliers Line of Credit: This scheme has been floated by ICICI to enable domestic manufacturers and dealers increase their sales by offering deferred credit to their buyers. This scheme is similar to the Bill Rediscounting Scheme of IDBI. Equipment Finance Scheme: This scheme has been offered by the two institutions- IDBI and IFCI. They provide assistance to existing units to acquire indigenous/imported equipment
CONCLUSION State financial corporations have not been able to become popular due to poor implementation and poor investments that they have undertaken. As they invest in small scale industries the returns will be lower as gestation period for small scale industries is very long. Losses are bound occur but as a business and financial organisation the government and the state must find ways of minimizing their losses and earning a moderate profit which can be recycled back to promote sfcs . Business decisions must be taken with a purely business perspective in mind and political, emotional factors should not play the major factors while making business decisions. As only then can there and will there exist a difference between what is viable and what is not