2. 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
3. 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.
4. Institutions Supporting Small-scale
Industries
CENTRAL
LEVEL
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
5. 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.
6. 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.
7. 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.
8. 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.
9. 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
10. 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
