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STATE FINANCIAL CORPORATION OF INDIA Introduction A Central Industrial Finance corporation was set up under the industrial Financec

o r p o r a t i o n s A c t , 1 9 4 8 i n o r d e r t o p r o v i d e m e d i u m a n d l o n g term credit to industrialundertakings which fall outside normal activities of commercial banks.The State governments expressed their desire that similar corporations be set up in states tosupplement the work of the Industrial financial corporation. State governments alsoexpressed that the State corporations be established under a special statue in order to m a k e i t possible to incorporate in the constitutions necessary provisions in regard to majority control b y t h e g o v e r n m e n t , g u a r a n t e e d b y t h e S t a t e g o v e r n m e n t in regard to the payment principal.In order to implement the views Expressed by the State governments the State FinancialCorporation bill was introduced in the Parliament. Statement of objects and reasons In order to provide medium and long term credit to industrial undertaking, which falloutside the normal activities of commercial banks, a central industrial finance corporationwas set up under the industrial Finance Corporations act, 1948.The state governments wished that similar corporations should be set up in their states tosupplement the work of industrial financial corporation.The intention is that the State corporations will confine to financing medium and smallscale industrial and will , as far as possible consider only such access which are outside the perview of industrial fianc corporation .The main features of the State financial Corporations Act 1951:i . T h e b i l l p r o v i d e s t h a t t h e s t a t e g o v e r n m e n t m a y , b y n o t i f i c a t i o n i n t h e o f f i c i a l gazette, establish a financial corporation for the state.i i . T h e s h a r e c a p i t a l s h a l l b e f i x e d b y t h e S t a t e g o v e r n m e n t b u t s h a l l n o t e x c e e d R s 2 crores . The issue of the shares to the public will be limited to 25 % of the sharecapital and the rest will be held by the State Governments, The Reserve Bank,Scheduled Banks, Insurance Companies, Investment Trusts, Co- operative banks andother financial institutions.i i i . S h a r e s o f t h e c o r p o r a t i o n w i l l b e g u a r a n t e e d b y t h e S a t e g o v e r n m e n t a s t o t h e r e p a ym e n t o f p r i n c i p a l a n d t h e p a ym e n t o f a m i n i m u m d i v i d e n d t o b e p r e s c r i b e d inconsultation with the central government.i v . T h e c o r p o r a t i o n w i l l b e a u t h o r i z e d t o i s s u e b o n d s a n d d e b e n t u r e s f o r a m o u n t s w h i c h together with the contingent liabilities of the corporations shall not exceed five t i m e s t h e amount of the paid up share capital and the reserve fund of thecorporations. These bonds and debentures will be guaranteed as to p a ym e n t o f t h e p r i n c i p a l a n d p a ym e n t o f i n t e r e s t a t s u c h r a t e a s m a y b e fixed by the Stategovernment.v . T h e c o r p o r a t i o n m a y a c c e p t d e p o s i t s f r o m t h e p u b l i c r e p a y a b l e a f t e r n o t l e s s t h a n five years, subject to the maximum not exceeding the paid up capital.v i . T h e c o r p o r a t i o n w i l l b e m a n a g e d b y a b o a r d

c o n s i s t i n g o f a m a j o r i t y o f D i r e c t o r s nominated by the Sate governments , The Reserve banks and the industrial Financecorporation of India vii. The corporation will be authorized to make long term loans to industrial c o n c e r n s w h i c h a r e r e p a ya b l e w i t h i n a p e r i o d n o t e x c e e d i n g 2 5 ye a r s . T h e Corporation will befurther authorized to underwrite the issue of stocks, s h a r e s , b o n d s o r d e b e n t u r e s b yi n d u s t r i a l c o n c e r n s , s u b j e c t t o t h e provision that the corporation will be required todispose of and shares etc. Acquired by it in fulfillment its underwriting liabilitywithin a period o f 7 ye a r s . v i i i . U n t i l a r e s e r v e f u n d i s c r e a t e d e q u a l t o t h e p a i d u p s h a r e c a p i t a l o f t h e C o r p o r a t i o n and until the State Governments has been repaid all amounts paid by them, if any, infulfillment of the guarantee liability, the rate of dividend shall not exceed the rateg u a r a n t e e d b y t h e s t a t e government. Under no circumstances shall the dividendexceed 5 % p.a. a n d s u r p l u s p r o f i t s w i l l b e r e p a ya b l e t o t h e S t a t e governments.i x . T h e c o r p o r a t i o n w i l l h a v e s p e c i a l p r i v i l e g e s i n t h e m a t t e r o f e n f o r c e m e n t o f i t s claims against borrowers. Financial resources of the SFCs :T h e S F C s m o b i l i z e t h e i r f i n a n c i a l r e s o u r c e s f r o m t h e f o l l o w i n g sources1 . T h e i r o w n S h a r e c a p i t a l 2 . I n c o m e from investment and repayment of loans3 . S a l e o f b o n d s 4.Loans from the IDBI ( To some extent )5.Borrowings from the Reserve Bank of India6 . D ep o s i t s f r o m t h e P u b l i c 7 . L o a n s f r o m S t a t e G o v e r n m e n t s . In the act Financial corporations are Financial corporations established under s e c t i o n 3 a n d includes a Joint Financial Corporation established under section 3 A of the Sate financialC o r p o r a t i o n s A c t o f 1 9 5 1 . T h e a c t a p p l i e s t o a l l i . Industrial Concern means any concern engaged or to be e n g a g e d i n a)The manufacturing, preservation or processing of goods. b ) T h e m i n i n g o r d e v e l o p m e n t o f m i n e s c ) T h e h o t e l i n d u s t r y d)The transport of passengers or goods by road o r b y w a t e r o r b y a i r ( o r ropeway or lift )e ) T h e g e n e r a t i o n o r distribution of electricity or any other form of power ,f)The maintenance, repair, testing or servicing of machinery of any d e s c r i p t i o n or vehicles or vessels or motor boats or trailers or tractors.g ) A s s e m b l i n g , r e p a i r i n g o r p a c k a g i n g a n d a r t i c l e w i t h t h e a i d o f m a c h i n e r a r y 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 ) P r o v i d i n g w e i g h t b r i d g e f a c i l i t i e s k)

Providing engineering, technical, financial, management, marketing or o t h e r services or facilities for industry. l) Providing medical, health or other allied services 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 servicesagencies and guidance counseling services to touristso ) C o n s t r u c t i o n p) Development , maintenance and construction of roads q) Providing commercial complex facilities and community centers includingconference hallsr ) F l o r i c u l t u r e s) Tissue culture, fish culture , poultry farming , breeding and hatcheries t) Service industry, such as altering. ornamentation , polishing , finishing ,o i l i n g , washing , cleaning or otherwise treating or adapting and article or substance with a view to its use , sale transport , delivery or disposal . u) Research and development of any concept , technology , design process or product , whether in relation to any of the matters aforesaid including a n ya c t i v i t i e s a p p r o v e d b y t h e S m a l l I n d u s t r i e s B a n k S t a t e F i n a n c i a l Corporations also include industries which specialize in processing goods which includes any art or process for producing , preparing or making an article bysubjecting any material to manual , mechanical , chemical , electrical or any other likeoperation . Broad functions of State Financial Corporations : P r o j e c t a d v i s o r y a n d F i n a n c e AS a catalyst in small scale industrial growth the SFCs provide the followings e r v i c e s : a ) I n v e s t m e n t a p p r a i s a l Project conceptualization and related services, including guidance in relation toselection of projects, preparation of feasibility studies, capital s t r u c t u r i n g , t e c h n o e c o n o m i c f e a s i b i l i t y, f i n a n c i a l e n g i n e e r i n g , p r o j e c t management design etc. C r e d i t S yn d i c a t i o n i n c l u d i n g a s s i s t a n c e i n l e g a l d o c u m e n t a t i o n e t c . Documentation of various project documents

Placement of debt equity including design of the structure of i n s t r u m e n t s , placement of instruments with financial institutions, bank etc. Assist in organizational structural changes like :( 1 ) A n a l y s i s o f o p e r a t i o n a l p e r f o r m a n c e (2)Study of existing organizational structure(3)Study of the existing statures and rules and regulations( 4 ) M a r k e t a n a l y s i s w i t h r e s p e c t t o p r o d u c t s (5)Review of domestic and international scenario(6)Valuation of fixed assets and inventory( 7 ) A d v i s i n g o n f o r m a t i o n o f n e w e n t i t y (8)Preparation of relevant agreements / legal documents. Industry Research / Information ServicesA 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 Placement of debt equity including design of the structure of i n s t r u m e n t s , placement of instruments with financial institutions, bank etc. Assist in organizational structural changes like :( 1 ) A n a l y s i s o f o p e r a t i o n a l p e r f o r m a n c e (2)Study of existing organizational structure(3)Study of the existing statures and rules and regulations( 4 ) M a r k e t a n a l y s i s w i t h r e s p e c t t o p r o d u c t s (5)Review of domestic and international scenario(6)Valuation of fixed assets and inventory( 7 ) A d v i s i n g o n f o r m a t i o n o f n e w e n t i t y (8)Preparation of relevant agreements / legal documents. Industry Research / Information ServicesA 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 thecorporate world. Legal Advisory ServicesA full fledged legal cell , comprising of experienced professional with expertise inhandling cases of diverse nature , o f f e r l e g a l h e l p s e r v i c e s . T h e s e r v i c e s r e n d e r e d b yt h i s u n i t c o m p r i s e i n v e s t i g a t i o n s a n d p r e p a r t i o n s o f t i t l e r e p o r t s , b e s i d e s a d v i s o r ys e r v i c e s in respect of matters under dispute where an independent consultuntantview is required . Specific functions of SFCs :The SFCs Provide the following types of assistance to industrial units in their respectives t a t e s : The SFCs 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 scheduledcommercial bank , they also accept personal pledge by the entrepreneur . SFCs donot give loans on the basis of second mortgage. G r a n t l o a n s o r a d v a n c e s t o i n d u s t r i a l c o n c e r n r e p a ya b l e w i t h i n a p e r i o d n o t e x c e e d i n g 2 0 ye a r s . Providing guarantee for loans raised by industrial units from commercial banks andstate cooperative banks. Providing guarantee for deferred payments in cases where industrial units h a v e p u r c h a s e d c a p i t a l g o o d s o n a d e f e r r e d p a ym e n t b a s i s . To underwrite the issue of shares, bonds and debentures of industrial concerns. To Subscribe to shares, bonds and debentures of industrial concerns. G u a r a n t e e l o a n s r a i s e d b y i n d u s t r i a l c o n c e r n s w h i c h a r e r e - p a ya b l e w i t h i n a p e r i o d n o t e x c e e d i n g 2 0 ye a r s a n d w h i c h a r e f l o a t e d i n t h e p u b l i c market SFcs grant loans to industrial units for the purchase of fixed capital assets like land,machinery. In some exceptional cases, some SFcs also provide loans for workingc a p i t a l r e q u i r e m e n t s i n c o m b i n a t i o n w i t h l o a n s f o r f i x e d c a p i t a l . SFcs provide loans in foreign currency for the import of machinery and t e c h n i c a l know how, under the IDA (International development association) and world bank tie up. SFcs however are prohibited from subscribing directly to the shares or s t o c k o f a n yc o m p a n y h a v i n g l i m i t e d l i a b i l i t y e x c e p t f o r u n d e r w r i t i n g p u r p o s e s a n d g r a n t i n g a n y loans or advance on the security of its own shares SFCs - Contributory to development of small scale industries in the Indianeconomy :T h e r e a r e a t p r e s e n t 1 8 S t a t e f i n a n c i a l C o r p o r a t i o n s a n d a l m o s t e v e r y s t a t e h a s a f i n a n c i a l c o r p o r a t i o n o f i t s o w n . During 2000-2001 SFCs had sanctioned loans aggregating to 2800 crores and disbursedR s 2 0 0 0 c r o r e s . Their assistance in the form of loans has declined subsequently due tothe e x i s t e n c e o f a l a r g e a m o u n t o f N o n P e r f o r m i n g a s s e t s . Over 70 % of the total assistance sanctioned and disbursed by all SFCs is provided tos m a l l s c a l e industries. Attempts are now being made to strengthen the role of SFCs asregional development banks.The SFCs sanctioned seed capital assistance under the seed capital schemes introducedand operated by

I D B I . This assistance is available to promoters of small business units. Since June 1989, SFCsh a v e a l s o b e e n i m p l e m e n t i n g s p e c i a l s c h e m e s o f s e e d c a p i t a l assistance to womenentrepreneurs.Assistance is extended in the form of l o a n o r g r a n t o r a c o m b i n a t i o n o f b o t h t o v o l u n t a r ya g e n c i e s w o r k i n g f o r women in decentralized industries. I N C R O R E S 1 9 8 0 8 1 1 9 9 0 - 9 1 2 0 0 0 - 0 1 2 0 0 3 0 4 L O A N S S A N C T I O N E D 3 7 0 1 8 6 0 2 8 0 0 1 1 3 0 L O A N S D I S B U R S E D 2 5 0 1 2 7 0 2 0 0 0 8 6 0 TOATL WRITTEN OFF ( LOSS ) RS 1880 CRORES.

CONCLUSION: STATE FINACIAL CORPORATIONS HAVE NOT BEEN ABLE TO BECOME POPULAR DUE TO POOR IMPLEMENTATION AND POOR INVESTMENTS THAT THEY HAVEUNDERTAKEN.AS THEY INVEST IN SMALL SCALE INDUSTRIES THE RETURNS WILL BE LOWER AS GESTATION PERIOD FOR SMALL SCALE INDUSTRIES IS VERY LONG. LOSSESARE BOUND OCCUR BUT AS A BUSINESS AND FINACIAL ORANISATION THEGOVERNMENT AND THE STATE MUST FIND WAYS OF MINIMISING THEIR LOSSES AND EARNING A MODERATE PROFIT WHICH CAN BE RECYCLED BACK T O P R O M O T E S F C S . BUSINEES DECISIONS MUST BE TAKEN WITH A PURELY BUSINESS PERSPECTIVEIN MIND AND POLITICAL, EMOTIONAL FACTORS SHOULD NOT PLAY THEMAJOR FACTORS WHILE MAKING BUSINESS DECISIONS. AS ONLY THEN CANTHERE AND WILL THERE EXIST A DIFFRENCE BETWEEN WHAT IS VIABLE ANDWHAT IS NOT. LIST OF 18 STATE FINACING CORPORATIONS IN INDIA . Assam Financial CorporationAndhra Pradesh State Financial CorporationBihar State Financial CorporationDelhi Financial CorporationGujarat State Financial CorporationThe Economic Development Corporation of GoaHaryana Financial CorporationHimachal Pradesh Financial CorporationJammu & Kashmir State Financial CorporationKarnataka State Financial CorporationKerala Financial CorporationMadhya Pradesh Financial CorporationMaharashtra State Financial CorporationOrissa State Financial CorporationPunjab Financial CorporationRajasthan Financial CorporationTamil Nadu Industrial Development CorporationLtd.Uttar Pradesh Financial Corporation West Bengal Financial Corporation

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