STATE FINANCIAL CORPORATIONS (SFCs)

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 In order to meet the financial requirements of small scale and medium-sized industries, there was a need of Introduction special financial institutions. With this view, the Central Government passed the State Financial Corporation Act on 28th September, 1951 which empowered the state government to establish financial corporation to operate within the state.State Financial Corporations, play an important role in the development of small and medium enterprises. So far (till now), there are 18 SFCs of which one of was setup under the SFCs Act while TNIIC Ltd was set up under the Companies Act.
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Thes e are.
Andhra Pradesh State Financial, Assam Financial Corporation, Bihar State Financial Corporation, Delhi Financial Corporation Saraswati Bhawan, Haryana Financial Corporation, Gujarat State Financial Services Ltd. Himachal Pradesh Financial Corporation, Jammu & Kashmir State Financial Corporation, West Bengal Financial Corporation, Karnataka State Financial, Kerala Financial Corporation, Madhya Pradesh Financial, Maharashtra State Financial, Orissa State Financial, Punjab Financial Corporation, Rajasthan Financial Corporation, Tamil Nadu Industrial Investment Corporation.

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OBJECTIVES
To establish uniformity in regional industries. To provide incentive to new industries. To bring efficiency in regional industrial units. To provide finance to small-scale, medium sized and cottage industries in the state. To develop regional financial resources.

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FUNCTIONS
To provide loans for a period not exceeding 20 years to industrial units. To underwrite the issue of shares, debentures and bonds for a period not exceeding 20 years of industrial units. To give guarantee to loans taken by industrial units for a period not exceeding 20 years. To make payment of capital goods purchased in India by these industrial units. To subscribe to the share capital of the industrial units, in case they wish to raise additional capital. To do all such acts as may be incidental of its duties under this Act.
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PROHIBITED FUNCTIONS
Not to give loan 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. Not to give loan on the security of its shares. Not to declare dividend on its shares without the sanction of the Central Government. Not to purchase shares and stocks directly of an industrial unit or limited public company.
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MANAGEMENT
State Financial Corporation of every State is Governed by a board of directors consisting of 18 directors in all, duly elected and nominated. Share Capital: The State Financial Corporation 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. Bond and Debentures: The State Financial Corporation can issue bonds and debentures to a maximum of ten times the amount of its paid-up capital and reserve fund.
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 Public Deposits: The State Financial Corporation 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 Reserve Bank.

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Critical Evaluation
It has been alleged that the State Financial Corporations are not working in accordance with the financial needs of the small-scale, medium-sized and cottage industries. The main arguments against their working are(i) (ii) (iii) (iv) (v) (vi) Inadequate Assistance; Undue delay in sanctioning and disbursing loans; Indifferent attitude towards new business enterprises; Absence of financial technical experts; Speed of progress is quite low; Complex working procedure and full of unnecessary and unwanted formalities; (vii) Shortage of requisite capital; (viii) Difference between loans sanctioned and disbursement is quite large; (ix) Lack of requisite training facilities to employees; and (x) Inadequate underwriting.

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THANK YOU..
(Any query!)

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