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 esta blished 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 i n r e g a r d t o t h e p a ym e n t p r i n c i p a l . I n o r d e r t o i m p l e m e n t 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 per view of industrial fianc corporation The main features of the State financial Corporations Act 1951 i. The bill provides that the state government may, by 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. ii. The share capital shall be fixed by the State governmen 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 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 S tate 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 i n c o n s u l t a t i o n with the central government. iv. The corporation will be authorized to issue bonds and 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 a m o u n t of the paid up share capital and the reserve fund of the corporations. These bonds and debentures will be guaranteed as t o 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 as may be fixed by the State government. v. The corporation may accept deposits from the public 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.

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The corporation will be managed by a board consisting of a m a j o r i t y o f D i r e c t o r s nominated by the State governments , The Reserve banks and the industrial Finance corporation of India The corporation will be authorized to make long term loans to 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 5 ye a r s . T h e C o r p o r a t i o n w i l l b e f u r t h e r a u t h o r i z e d t o 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. Until a reserve fund is created equal to the paid up share 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 rate guaranteed by the state government. Under no circumstances shall the dividend exceed 5 % p.a. and surplus profits will be re p a ya b l e t o t h e S t a t e g o v e r n m e n t s . The corporation will have special privileges in the matter o f e n f o r c e m e n t o f i t s claims against borrowers.

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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 providing the following s e r v i c e s : a)Investment appraisal b) Project conceptualization and related services , including guidance in relation to selection of projects, preparation of feasibility studies, capital structuring, techno economic 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 m a n a g e m e n t d e s i g n e t c . c) Credit Syndication including assistance in legal documentation etc. d) Documentation of various project documents e) Placement of debt equity including design of the structure o f i n s t r u m e n t s , placement of instruments with financial institutions, bank etc. f) 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 ent ity (8)Preparation of relevant agreements/legal documents. g) 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. h) 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 preparations of title reports, besides advisory services in respect of matters under dispute where an independent consul tant view is required SPECIFIC FUNCTIONS OF SFCS The SFCs Provide the following types of assistance to industrial units in their respective s t a t e s : The SFCs while giving loans to industrial units see to it that loans are secured by a PLEDGE, MORTAGAGE, o f m o v a b l e a n d i m m o v a b l e p r o p e r t y o r other tangible assets or guarantee by the state government or scheduled commercial bank, they also accept person al pledge by the entrepreneur SFCs do not 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 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 u n i t s 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 public 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

working c 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 capital. SFCs provide loans in foreign currency for the import of machinery a n d t e c h n i c a l know how, under the IDA (International dev elopment association) and world bank tie up. SFCs however are prohibited from subscribing directly to the shares or stock of any company having limited liability except for underwriting 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