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State Financial

CorporationPresented By

Dheeraj.P

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A Central Industrial Finance corporation was set up under the industrial Financorporations Act, 1948 in order to provide medium and long term credit to in

undertakings which fall outside normal activities of commercial banks.

The State governments expressed their desire that similar corporations be set

to supplement the work of the Industrial financial corporation.

State governments also expressed that the State corporations be established ua special statue in order to make it possible to incorporate in the constitutions

provisions in regard to majority control by the government, guaranteed by th

government in regard to the payment principal.

In order to implement the views Expressed by the State governments the Stat

Corporation bill was introduced in the Parliament

Introduction

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Financial Resources Of The

Sfcs

The SFCs 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.

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Institutions Supporting Small-scale

Industries

CENTRAL

LEVEL

SSI BOARD KVIC

SIDO

NSIC

NSTEDB

NPC

NISIET

NIESBUD

IIE

EDI

SSIs

STATE LEV

DIs

DICs

SFCs

SIDCs/SIICs

SSIDCs

OTHERS

Industry Association

Non Governmental Organizations

R & D Laboratories

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State Financial Corporations

(sfcs)

The state-level institutions have played an important role in the development of smal

enterprises in their respective states with the main objectives of financing and promo

enterprises for achieving balanced regional growth, catalyze investment, generate em

widen the ownership base of industry.

With the liberalization drive getting accelerated, SFCs future business is likely to fa

a range of financial services that utilizes sound and dynamic investment decisions to

aiming to protect and develop their global wealth.

The State Financial Corporations (sfcs) are state-level financial institutions, operatin

development banks playing a crucial role in the development of small and medium e

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 C

Madras Industrial Investment Corporation, also functions as a SFC.

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Forms of Assistance

The forms of assistance can be broadly classified into direct assistance and indirect assi

feature of direct assistance is that financial institutions provide funds directly to the projindirect assistance, the financial institutions provide guarantees on behalf of the promot

project.

Direct assistance

Fund based assistance:

In this kind of assistance, term loans are provided in both rupees and in foreign curren

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; purc

machinery, as well as, for technical know how, preliminary and pre-operative expenses,

money for working capital. Generally, the repayment period is five to fifteen years with

moratorium of six months.

F i l

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Foreign curr ency term loans:

Institutions provide term loans in foreign currency to fund the acquisition of fixed asset

machinery, as well as to acquire technical know how from foreign suppliers. Institutions

first charge on the assets financed by them, and on all other fixed assets of the borrower

Subscri ption to Equi ty Shares:

This form of assistance is available to the project only when institutions are sure that thto take any more debt, although the proposed venture is worthwhile. It is often a very sm

project cost.

Seed Capital Assistance:

This form of assistance is provided by national financial institutions through the State F

(sfcs) and the State Industrial Development Corporations (sidcs). All borrowers have to

proposals, through their respective sfcs and sidcs. This assistance carries interest as low 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

society formed under the Society Registration Act. Loans under this scheme are generall

range between Rest. 15-40 lakhs, depending on the number of the promoters and the cos

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Indirect assistance

Deferr ed Payment Guarantee:

Financial institutions provide this deferred credit facility to the equipment suppliers on

clients and charge guarantee commission to the client. Guarantee is provided for the pur

indigenous and imported equipment. Most scheduled banks and co-operative banks prov

Guarantee for Foreign Currency Loans:

This kind of guarantee is provided to the client as raised term loans from overseas mar

Institutions stand guarantee to the borrower, who is yet to establish him in the overseas mhave high credit standing.

Underwriting:

Institutions usually underwrite the public issue of those clients, who have invested in

through term loans.

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CONTD

Bi ll Rediscounting Scheme:

This scheme has been introduced by IDBI to help domestic producers and dealers of

Under this scheme, deferred payment facility is available for the purchase of machinecategories forms of businesses such as proprietary concerns, partnerships, private and

companies, co-operative societies and corporations.

Suppliers Line of Credit:

This scheme has been floated by ICICI to enable domestic manufacturers and dealer

sales by offering deferred credit to their buyers. This scheme is similar to the Bill Red

Scheme of IDBI.

Equipment F inance Scheme:

This scheme has been offered by the two institutions- IDBI and IFCI. They provide a

existing units to acquire indigenous/imported equipment

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CONCLUSION

State financial corporations have not been able to become popular due to poor impand poor investments that they have undertaken.

As they invest in small scale industries the returns will be lower as gestation perio

scale industries is very long.

Losses are bound occur but as a business and financial organisation the governmen

the state must find ways of minimizing their losses and earning a moderate profit w

recycled back to promote sfcs . Business decisions must be taken with a purely business perspective in mind and p

emotional factors should not play the major factors while making business decisio

As only then can there and will there exist a difference between what is viable and

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