The Industrial Finance Corporation of India was set up to offer financial assistance to only large and medium – sized undertakings. Accordingly, the State Financial Corporation Act was passed by parliament on September 28, 1951, as an enabling measure, under which State Financial Corporation’s (SFCs) could be set up. The first SFC was set up in Punjab in 1953.
Function and Types of Assistance The SFCs have been set up to extend long – term finance to small and medium – scale industrial undertakings organized as public and private companies, cooperatives, partnerships or proprietary concerns. The SFCs render assistance in the following forms:
Grant of loans and advances to industrial concerns for periods not exceeding 20 years;
Subscription to debentures repayable within a periods of 20 years;
Guarantee of loans raised in the market or from scheduled or cooperative banks by the industrial concerns and repayable within 20 years;
Guarantee of deferred payments for purchases of plant, machinery, etc. within India;
Undertaking the issue of stocks, shares, bonds and debentures by industrial undertakings.
As far as SFC bonds and debentures are concerned, they are mostly subscribed by commercial banks, the Life Insurance Corporation of India and other financial institutions. They are presently an important source of the SFCs and account for about 30 percent of them.
The SFCs also borrow from the reserve bank, the state governments and the IDBI. The borrowings of the SFCs including the bond issues at any time should not exceed 10 times of their paid up capital and reserves. During recent year, refinance from IDBI has become the most important source of funds for the SFCs.
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