State Financial Corporations-Overview

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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 established under a special statue in order to make it possible to incorporate in the constitutions necessary provisions in regard to majority control by the government, guaranteed by the State government in regard to the payment principal. In order to implement 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 perview of industrial fiancé corporation .

The main features of the State financial Corporations Act 1951: i.
The bill provides that the state government may, by notification in the official gazette, establish a financial corporation for the state.

The share capital shall be fixed by the State government but shall not exceed Rs 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.


Shares of the corporation will be guaranteed by the Sate government as to the re – payment of principal and the payment of a minimum dividend to be prescribed in consultation with the central government. iv.

The corporation will be authorized to issue bonds and debentures for amounts which together with the contingent liabilities of the corporations shall not exceed five – times the amount of the paid – up share capital and the reserve fund of the corporations. These bonds and debentures will be guaranteed as to payment of the principal and payment of interest at such rate as may be fixed by the State government.

The corporation may accept deposits from the public repayable after not less than five years, subject to the maximum not exceeding the paid up capital. vi.

The corporation will be managed by a board consisting of a majority of Directors nominated by the Sate governments , The Reserve banks and the industrial Finance corporation of India

he corporation will be authorized to make long term loans to industrial concerns which are repayable within a period not exceeding 25 years. The Corporation will be further authorized to 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 capital of the Corporation and until the State Governments has been repaid all amounts paid by them, if any, in fulfillment 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 – payable to the State governments. ix.

The corporation will have special privileges in the...
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