State Finance Corporation

State Finance Corporation

The Indian government passed the State Finance Corporation act on 28th September, 1951 so that the state government could provide financial assistance to the various industries. Under this act each state was given the right to establish a State Finance Corporation. Under this the first to get established was the Punjab Finance Corporation. Presently 18 state finance corporations have been established all over the country.

The aims of State Finance Corporations – the state finance corporations were set up to fulfil four main objectives –

(i) to cooperate in development of regional industries

(ii) to fully activate regional finances

(iii) to encourage new industries

(iv) to improve the work efficiency of industrial units.

The financial sources of state financial corporations

– the state financial corporations have the complete right to take their own decisions regarding the capital but according to the State Financial Act the maximum capital for every state financial corporation has been decided to be Rs. 5 crores and minimum Rs. 50 lakhs. The state governments, the Reserve Bank of India and Industrial Development Bank as well as the scheduled banks, cooperative banks, insurance firms and other financial institutions also have the right to purchase share capital of state finance corporations. 25% part of the capital of these corporations can be purchased by general public.

The functions of State Finance Corporation – the
state finance corporations do the following functions –

(a) Underwriting – these corporations can under-
write the shares and letters of credit of industrial units.

(b) Period – these corporations can provide di-
rect loans to small and medium sized industrial units for a period of 20 years or can purchase their letters of credit.

(C) Guarantee – these corporations can give a
guarantee for the loans which have been taken by industrial Units from the public and are of less than 20 year period.

(d)Purchase of shares – these corporations can
also purchase shares of other companies. In this way by contributing in the shares of the state industrial units they provide important financial assistance to them.

(e)these corporations also perform the task of providingTo give guarantee for delayed payments.