Objectives & Functions of SFCs

State Finance Corporations (SFCs) play an important role in a country’s institutional finance framework. The SEC supports the states’ small and medium-sized enterprises. Furthermore, SFC contributes to balanced regional development, increased investment, greater job creation, and wide ownership of diverse businesses.

At the time of the establishment of the Industrial Finance Corporation of India, the need for similar other institutions at the state level to assist smaller industrial concerns was not recognized because a single institution could not meet the capital needs of smaller concerns scattered across the country. The Central Government established the State Financial Corporation Act in 1951 to establish a distinct financial corporation for each state. The S.F.C. fulfills the financial needs of small industrial businesses in the private sector.

Objectives and Scopes

The primary goals of the S.F.C. are to give financial support to medium and small-scale enterprises that fall beyond the scope of I.F.C.I. The primary role of the S.F.C. is restricted to its states. It applies to not just public limited corporations, but also private limited companies, partnership enterprises, and proprietary organizations.

Functions of SFC

• It provides loans and advances to industrial firms that must be repaid within a maximum of 20 years.
• It buys shares and debentures in industrial enterprises.
• It backs the shares and debentures of industrial companies.
• It ensures that debts generated by industrial firms will be repaid within 20 years.
• Guarantees delayed payments for capital goods purchased from India.
• It functions as a representative of the state and federal governments.
• Section 2(C) of the SFC Act 1951, as modified in 1961, states that the SFC may help an industrial concern engaged in any of the following activities:
• Manufacturing, preserving, or processing items
• Hotel Industries
• Road Transport
• The production or delivery of electricity or any other kind of power
• Development of any tract of land into an industrial estate.
• Fishing, providing fishing facilities, or manufacturing fish goods.
• Providing specialized or technical knowledge or other services to promote industrial progress.
• SFC offers foreign currency loans under World Bank initiatives.
• The SFC is a key institution for industrial growth in the nation. The industries that benefit the most from SFC help are:
• Food Processing
• Textile Chemicals and Chemical Products.
• Metal Production
• Function of State Financial Corporations (SFCs) in India.

Under the provisions of the State Financial Corporation Act of 1952, SFCs are established in several states to provide term financing to medium and small-scale companies.

There are 18 SFCs (including Tamil Nadu Industrial Investment Corporation Ltd.) functioning in seventeen states and the Union Territory of Delhi. The State Government and the IDBI have diarchical oversight over the SFCs.

SFCs perform tasks comparable to those of the IFCI. They may give financial support in the form of loans and advances, share and debenture subscriptions, fresh issue underwriting, and loan guarantees. However, in reality, they have focused mostly on loans and advances. As a result, their borrowing policy need reorientation.

During 1995-96, the total aid sanctioned by all SFCs was Rs. 3,999 crore, with disbursements of up to Rs. 2,572 crore.

One notable trait is that, in recent years, a significant portion of their support has gone to small-scale companies and backward areas.

However, it has been found that the growth of industries with SFC aid has been inconsistent between states and regions. Thus, the SFCs have failed to achieve a regionally balanced expansion of sectors in the correct sequence. In addition, they have favored large-scale enterprises over small- and medium-sized industries when offering aid.

As a result, it is proposed that they pay more attention to the distribution of industries in rural and underserved regions. They could also encourage self-employment and provide potential businesses composite financing (fixed plus working capital).