Objectives & Functions of SFCs

The State Finance Corporations (SFCs) are an integral part of institutional finance structure of a country. Where SEC promotes small and medium industries of the states. Besides, SFC help in ensuring balanced regional development, higher investment, more employment generation and broad ownership of various industries.

At the time of setting up of the Industrial Finance Corporation of India, the necessity of establishing similar other institutions at the state level for assisting the smaller industrial concern had not been recognised because it was not possible for a single institution to satisfy the capital needs of smaller concerns spreaded all over the country. In 1951, the State Financial Corporation was passed by the Central Government to create a separate financial corporation for the states. The S.F.C. meets the financial requirements of small industrial concerns in the private sectors.

Objectives and Scopes

The main objectives of the S.F.C are to provide financial assistance to medium and small scale industries which are outside the scope of I.F.C.I. The main function of S.F.C. is limited within its states. It covers not only public limited companies but also private limited companies, partnership firms and proprietary concerns.

Functions of SFC

• It grants loan and advances to industrial concerns that are repayable within the maximum period of 20 years.
• It subscribes the shares and debentures of industrial concerns.
• It underwrites the shares and debentures of the industrial concerns.
• It guarantees loans raised by the industrial concerns repayable within 20 years.
• Guarantees deferred payments for purchase of capital goods with India.
• It acts as an agent of the State and central Government.

According to section 2(C) of the SFC Act 1951 as amended in 1961, the SFC can assist an industrial concern that is engaged in any of the following activities:

• Manufacture, preservation or processing of goods
• Hotel Industries
• Road Transport
• Generation or distribution of electricity or any other form of power
• Development of any area of land as industrial estate.
• Fishing or providing facilities for fishing or manufacture of fish products.
• Providing special or technical knowledge or other services for the promotion of industrial growth.

SFC provides foreign exchange loans under World Bank schemes.

The SFC occupies an important place as an institution for industrial development in the country. The major beneficiaries of the SFC are assistances are the following industries:

• Food Processing
• Textile Chemical and Chemical Products
• Metal Production

Function of State Financial Corporation’s (SFCs) in India

Under the provision of the State Financial Corporation Act, 1952, the SFCs are set up in the different states for providing term finance to medium and small scale industries.

There are 18 SFCs (including the Tamil Nadu Industrial Investment Corporation Ltd.) operating in seventeen different states and Delhi (Union Territory). The SFCs are under the diarchical control of the State Government and the IDBI.

The SFCs have functions similar to those of the IFCI. They are empowered to provide financial assistance in the form of loans and advances, subscription to shares and debentures, underwriting of new issues, and guarantee of loans. But, in practice, they have concentrated mostly on loans and advances only. There is, therefore, a need for reorientation of their loans policy.

During the year 1995-96, the total assistance sanctioned by all the SFCs together amounted to Rs. 3,999 crore and disbursement was up to Rs. 2,572 crore.

An important feature is that, in recent years, a large part of their assistance has gone to small-scale industries and in backward regions.

It has been observed, however, that there has been uneven development of industries with SFCs’ assistance in different states and regions. Thus, the SFCs have failed to bring about a regional balanced growth of industries in a proper order. They have also favoured many large scale industries rather than small and medium industries in providing their assistance.

It is, therefore, suggested that they should take greater care towards dispersal of industries in rural and backward areas. They should also support self-employment schemes and provide composite finance (fixed plus working capital) to the prospective entrepreneurs.