State Financial Corporations (SFCs) were established under the State Financial Corporations Act of 1951 to provide medium and long-term financing to small and medium industrial enterprises. The key objectives were to supplement the work of the Industrial Finance Corporation of India and focus on financing small and medium industries. SFCs mobilize funds through share capital, bonds, public deposits, and loans. They provide loans, underwriting support, and guarantees to eligible industrial projects. Though they initially played a major role in industrial financing, their performance deteriorated over time due to rising non-performing assets. There are currently 18 SFCs operating across different states in India.

1. STATE FINANCIAL CORPORATION OF INDIA
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.
Statement of objects and reasons
In order to provide medium and long term credit to industrial undertaking, which fall
outside the normal activities of commercial banks, a central industrial finance corporation
was set up under the industrial Finance Corporations act, 1948.
The state governments wished that similar corporations should be set up in their states to
supplement the work of industrial financial corporation.
The intention is that the State corporations will confine to financing medium and small
scale industrial and will , as far as possible consider only such access which are outside the
preview of industrial finance corporation .
The main features of the State financial Corporations Act 1951:
i. The bill provides that the state government may, by notification in the official
gazette, establish a financial corporation for the state.
ii. The share capital shall be fixed by the State government but shall not exceed Rs 2
crores. The issue of the shares to the public will be limited to 25 % of the share
capital and the rest will be held by the State Governments, The Reserve Bank,
Scheduled Banks, Insurance Companies, Investment Trusts, Co- operative banks and
other financial institutions.
iii. Shares of the corporation will be guaranteed by the State government as to the re –
payment of principal and the payment of a minimum dividend to be prescribed in
consultation with the central government.
iv. The corporation will be authorized to issue bonds and debentures for amounts which
together with the contingent liabilities of the corporations shall not exceed five –
times the amount of the paid – up share capital and the reserve fund of the
corporations. These bonds and debentures will be guaranteed as to payment of the
principal and payment of interest at such rate as may be fixed by the State
government.
v. The corporation may accept deposits from the public repayable after not less than
five years, subject to the maximum not exceeding the paid up capital.
vi. The corporation will be managed by a board consisting of a majority of Directors
nominated by the State governments , The Reserve banks and the industrial Finance
corporation of India

2. vii. The corporation will be authorized to make long term loans to industrial concerns
which are repayable within a period not exceeding 25 years. The Corporation will be
further authorized to underwrite the issue of stocks, shares, bonds or debentures by
industrial concerns, subject to the provision that the corporation will be required to
dispose of and shares etc. Acquired by it in fulfillment its underwriting liability
within a period of 7 years.
viii. Until a reserve fund is created equal to the paid – up share capital of the Corporation
and until the State Governments has been repaid all amounts paid by them, if any, in
fulfillment of the guarantee liability, the rate of dividend shall not exceed the rate
guaranteed by the state government. Under no circumstances shall the dividend
exceed 5 % p.a. and surplus profits will be re – payable to the State governments.
ix. The corporation will have special privileges in the matter of enforcement of its
claims against borrowers.
Financial resources of the SFC’s:
The SFC’s mobilize their financial resources from the following sources
1. Their own Share capital
2. Income from investment and repayment of loans
3. Sale of bonds
4. Loans from the IDBI ( To some extent )
5. Borrowings from the Reserve Bank of India
6. Deposits from the Public
7. Loans from State Governments.
In the act Financial corporations are established under section 3 and includes a Joint
Financial Corporation established under section 3 A of the Sate financial Corporations Act
1951.
The act applies to all
i. “ Industrial Concern “ means any concern engaged or to be engaged in
a) The manufacturing, preservation or processing of goods.
b) The mining or development of mines
c) The hotel industry
d) The transport of passengers or goods by road or by water or by air ( or
ropeway or lift )
e) The generation or distribution of electricity or any other form of power ,
f) The maintenance, repair, testing or servicing of machinery of any description
or vehicles or vessels or motor boats or trailers or tractors.
g) Assembling , repairing or packaging and article with the aid of machinery or
power
h) The setting up or development of an industrial area industrial estate
i) Fishing or providing shore facilities for fishing or maintenance thereof
j) Providing weight bridge facilities
k) Providing engineering, technical, financial, management, marketing or other
services or facilities for industry.
l) Providing medical, health or other allied services.

3. m) Providing software or hardware services relating to information technology ,
telecommunication or electronics including satellite linkage
n) Setting up or development of tourism related facilities including amusement
parks , conventions centers , restaurants travel and transport , tourist services
agencies and guidance counseling services to tourists
o) Construction, Development , maintenance and construction of roads
p) Providing commercial complex facilities and community centers including
conference halls
q) Floriculture, Tissue culture, fish culture , poultry farming , breeding and
hatcheries
r) Service industry, such as altering. ornamentation , polishing , finishing ,
oiling , washing , cleaning or otherwise treating or adapting and article or
substance with a view to its use , sale transport , delivery or disposal .
s) Research and development of any concept , technology , design process or
product , whether in relation to any of the matters aforesaid including any
activities approved by the Small Industries Bank
State Financial Corporations also include industries which specialize in “ processing goods “
which includes any art or process for producing , preparing or making an article by
subjecting any material to manual , mechanical , chemical , electrical or any other like
operation .
Broad functions of State Financial Corporations:
• Project advisory and Finance
AS a catalyst in small scale industrial growth the SFC’s provide the following
services:
a) Investment appraisal
• Project conceptualization and related services, including guidance in relation to
selection of projects, preparation of feasibility studies, capital structuring, techno –
economic feasibility, financial engineering, project management design etc.
• Credit Syndication including assistance in legal documentation etc.
• Documentation of various project documents
• Placement of debt – equity including design of the structure of instruments,
placement of instruments with financial institutions, bank etc.
• Assist in organizational structural changes like :
(1) Analysis of operational performance
(2) Study of existing organizational structure
(3) Study of the existing statures and rules and regulations
(4) Market analysis with respect to products
(5) Review of domestic and international scenario
(6) Valuation of fixed assets and inventory
(7) Advising on formation of new entity
(8) Preparation of relevant agreements / legal documents.
• Industry Research / Information Services
A dedicated research team looking at both macro – level issues as well as sector –
specific, industry research. The expertise of the professional research team and a
large diversified data base enables SFC to provide erudite research reports to the
corporate world.

4. • Legal Advisory Services
A full – fledged legal cell , comprising of experienced professional with expertise in
handling cases of diverse nature ,offer legal help services . The services rendered by
this unit comprise investigations and prepartions of title reports , besides advisory
services in respect of matters under dispute where an independent consultuntant
view is required .
Specific functions of SFC’s :
The SFC’s Provide the following types of assistance to industrial units in their respective
states:
 The SFC’s while giving loans to industrial units see to it that loans are secured by a
PLEDGE, MORTAGAGE, HYPOTHECATION of movable and immovable
property or other tangible assets or guarantee by the state government or scheduled
commercial bank , they also accept personal pledge by the entrepreneur . SFC’s do
not give loans on the basis of second mortgage.
 Grant loans or advances to industrial concern repayable within a period not
exceeding 20 years.
 Providing guarantee for loans raised by industrial units from commercial banks and
state cooperative banks.
 Providing guarantee for deferred payments in cases where industrial units have
purchased capital goods on a deferred payment basis.
 To underwrite the issue of shares, bonds and debentures of industrial concerns.
 To Subscribe to shares, bonds and debentures of industrial concerns.
 Guarantee loans raised by industrial concerns which are re- payable within a period
not exceeding 20 years and which are floated in the public market
 SFc’s grant loans to industrial units for the purchase of fixed capital assets like land,
machinery. In some exceptional cases, some SFc’s also provide loans for working
capital requirements in combination with loans for fixed capital.
 SFc’s provide loans in foreign currency for the import of machinery and technical
know – how, under the IDA (International development association) and world bank
tie up.
 SFc’s however are prohibited from subscribing directly to the shares or stock of any
company having limited liability except for underwriting purposes and granting any
loans or advance on the security of its own shares .
SFC’s - Contributory to development of small scale industries in the Indian
economy:
There are at present 18State financial Corporations and almost every state has a financial
corporation of its own.
During 2000-2001 SFC’s had sanctioned loans aggregating to 2800 crores and disbursed
Rs 2000 crores. Their assistance in the form of loans has declined subsequently due to
the existence of a large amount of Non – Performing assets.

5. Over 70 % of the total assistance sanctioned and disbursed by all SFC’s is provided to
small scale industries. Attempts are now being made to strengthen the role of SFC’s as
regional development banks.
The SFC’s sanctioned seed capital assistance under the seed capital schemes introduced
and operated by IDBI.
This assistance is available to promoters of small business units. Since June 1989, SFC’s
have also been implementing special schemes of seed capital assistance to women
entrepreneurs.
Assistance is extended in the form of loan or grant or a combination of both to voluntary
agencies working for women in decentralized industries.
IN CRORES 1980-81 1990-91 2000-01 2003-04
LOANS SANCTIONED 370 1860 2800 1130
LOANS DISBURSED 250 1270 2000 860
TOTAL WRITTEN OFF ( LOSS ) RS 1880 CRORES.
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
organization the government and the state must find ways of minimizing their losses and
earning a moderate profit which can be recycled back to promote SFC’S .
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 exists a difference between what is viable and what is not.
LIST OF 18 STATE FINACING CORPORATIONS IN INDIA.
Assam Financial Corporation
Andhra Pradesh State Financial Corporation
Bihar State Financial Corporation
Delhi Financial Corporation
Gujarat State Financial Corporation
The Economic Development Corporation of Goa
Haryana Financial Corporation
Himachal Pradesh Financial Corporation
Jammu & Kashmir State Financial Corporation
Karnataka State Financial Corporation
Kerala Financial Corporation

6. Madhya Pradesh Financial Corporation
Maharashtra State Financial Corporation
Orissa State Financial Corporation
Punjab Financial Corporation
Rajasthan Financial Corporation
Tamil Nadu Industrial Development Corporation
Ltd.
Uttar Pradesh Financial Corporation
West Bengal Financial Corporation
TAMIL NADU INDUSTRIAL INVESTMENT CORPORATION
INTRODUCTION:
The Tamil Nadu Industrial Investment Corporation Limited (TIIC) was incorporated
as a company under the Companies Act. TIIC is a State Financial Institution
extending financial assistance for the creation of industrial fixed assets for starting
new industrial units as well as for expansion, modernisation and diversification of
existing units.
2. TYPE OF ASISTANCE:
TIIC offers long and medium term financial assistance in the following forms:
a) Term Loas
b) Term Loan and working capital assistance under the Single Window Scheme.
c) Lease financing for machinery/equipments.
d) Hire Purchase financing for machinery/equipments.
e) Factoring ( i.e. Bill discounting).
ELIGIBLE ACTIVITIES:
The assistance of the Corporation is available to those concerns engaged In or
processing to be engaged in:-
a) Manufacturing, Processing or preservation of goods.
b) Generation of electricity or any form of power including wind mills.
c) Setting up of nursing homes/hospitals and purchase of electro medical
equipments.

7. d) Hotels and Restaurants.
e) Purchase of vehicles for material/goods transportation and for transport of
passengers.
f) Facilities for preservation of marine products and food items including cold
storage.
g) Commercial complex/Storage godown/ Marriage Hall.
h) Computer Training Institutions.
QUANTUM OF LOAN ASSISTANCE:
TIIC provides term loan assistance upto maximum of Rs. 800 lakhs. TIIC has 8
Regional Offices and 36 Branches in Tamilnadu. Branch Offices have been
delegated with powers to sanction Loans upto Rs.30. lakhs. Loan above Rs.30.00
lakhs are considered by Head Office.
5.HOW TO APPLY:
For getting financial assistance from TIIC, one has to apply in the Prescribed
application forms available in all the TIIC offices. There are separate application
forms for various schemes.
6. APPRAISAL OF PROJECT BY TIIC:
The appraises the application for the technical feasibility and economic viability
before according sanction. The applicant should satisfy TIIC regarding the
marketability and furnish the details of the cost of production, cash flow etc., during
the loan period to assess the pay back period.
7. RATE OF INTEREST:
The rate of intrest for the term loan is in the range of 12.5% p.a to 16% p.a. based
on the quantum of loan and nature of industries. A rebate of 1% p.a. will be allowed
for prompt payment at the end of every year.
8. FINANCIAL NORMS:
Debt-Equity Ratio:
The maximum debt-equity ratio for both SSI and medium Scale units shall be 2:1.
Promoter’s Contribution:
The minimum promoter’s contribution is around 22.5% to 35%. Higher pormoter’s
contribution will be stipulated wherever necessary.

8. iii) Margin of Security:
For term loans, minimum of 15% to 25% security margin on fixed assets is
stipulated.
iv) Collateral Security:
In addition to primary security of assets financed, TIIC may Stipulate collateral
security wherever needed.
v) Repayment Period:
Loan repayment is generally spread over a period of 5 to 9 Years with a moratorium
ranging from 3 months to two years.
vi) Stamp Duty:
SSI are exempted from levy of stamp duty in respect of Mortgage deed.
9. SUBSIDIES FROM GOVERNMENT OF TAMILNADU:
TIIC is an implementing agency for State Capital Subsidy provided by the Government of
Tamilnadu for its assisted units.It also sanctions subsidy bridge loan along with the term
loan Sanction in order to meet the gap in the means of finance Pending release of subsidy by
the Government after implementation of project/commencement of production. TIIC is also
the implementing agency for the non-assisted medium andlarge scale industries for
providing State Capital Subsidy