Lok Sabha Question No. 1128 (UNSTARRED), answered on 2016-04-29
Subject: Revival of State Financial Corporation
Ministry: FINANCE
Asked by: RITA TARAI

## Draft Reply Govt. of India Ministry of Finance Department of Financial services

## LOK SABHA UNSTARRED QUESTION No. 1128

## TO BE ANSWERED ON THE 29 th  April, 2016 / Vaisakha 9, 1938 (Saka)

## Revival of State Financial Corporation

## QUESTION

## 1128. SHRIMATI RITA TARAI:

Will the Minister of FINANCE be pleased to state:

- a) whether the Union Government has any  plan  and  programme  to  revive and  revitalise  the  State  Financial Corporations (SFCs) many of which are  sick  today  incapacitating  them to carry out their mandated role and if  so,  the  details  thereof  and  the manner in which the State Governments are likely to be associated in the revival/restructuring of SFCs;
- b) whether the State Industrial Development Bank of India (SIDBI) has decided to gradually phase out refinance support to SFCs, if so, the

## ANSWER

## To be answered by ( MINISTER OF STATE IN THE MINISTRY OF FINANCE) (SHRI  JAYANT SINHA )

- (a) Based  on  the  Gupta  Committee  recommendations, Government of India had advised the State Governments to consider  recapitalization  of  SFCs  after  establishing  their long term viability and relevance. Only 10 State Governments viz; Delhi, Haryana, Kerala, Karnataka, Madhya  Pradesh,  Andhra  Pradesh,  Orissa,  Rajasthan, Tamil  Nadu  and  West  Bengal  recapitalized  their  SFCs  to some  extent  by  cash  infusion  and/or  by  way  of  pass through mechanism.

Small Industries Development Bank of India (SIDBI) entered  into  Memorandum  of  Understanding  (MoUs)  with 11  SFCs  for  the  revival  of  these  SFCs.  As  per  the  MoU, State Governments  made  commitments  to also meet specified  obligations.  As  on  date,  the  MoUs  have  lapsed and no further renewal is proposed.

- 7 SFCs did not sign the MoU as the MoU conditions were not  acceptable  to  the  respective  State  Governments  / Corporations. Out of 18 SFCs, only 8 SFCs are in operation now.
- (b) SIDBI  has  decided  to  gradually  phase  out  its  SFC portfolio.  This  was  done  to  ring  fence  SIDBI  from  the existing/likely loss on SFCs portfolio due to reduced income and  requirement  of  higher  provisioning  upon  slippages  of
- details thereof and the reasons therefor;
- c) the details of policy adopted by the Government  on  the  Micro,  Small and  Medium  Enterprises  (MSMEs) and the manner in which the same is being implemented; and
- d) the measures taken/ proposed to be taken to maintain a balance between SFCs and MSMEs?

more SFCs to Non Performing Asset (NPA) which adversely impact the profitability and credit rating of SIDBI.

- (c) Policy  action  for  the  development  and  promotion  of Micro,  Small  and  Medium  Enterprises  (MSME)   inter-alia includes implementation  of MSME  Development  Act, 2006, National Manufacturing Competitiveness Programme, implementation of recommendations of Prime Minister's Task Force on MSME, Public Procurement Policy for  Goods  Produced and Services rendered by Micro and Small Enterprises (MSEs), E-Governance initiatives, assisting States in their efforts to encourage entrepreneurship, employment and livelihood opportunities and enhance the competitiveness of MSMEs  in the changed economic scenario etc.
- (d) Credit gaps in MSME eco-system are being progressively  bridged  by  financial  intermediaries  such  as Scheduled Commercial Banks, Financial Institutions, NonBanking  Financial  Companies  (NBFCs),  Micro  Finance Institutions (MFIs) etc. Policy support is additionally provided through Priority Sector Guidelines of the Reserve Bank of India (RBI) which cover lending to MSMEs.

## Govt. of India Ministry of Finance Department of Financial services

## LOK SABHA UNSTARRED QUESTION No. 1128

## TO BE ANSWERED ON THE 29 th  April, 2016 / Vaisakha 9, 1938 (Saka)

## Revival of State Financial Corporation

## QUESTION

## 1128. SHRIMATI RITA TARAI:

Will the Minister of FINANCE be pleased to state:

- a) whether  the  Union  Government  has  any  plan  and  programme  to  revive  and  revitalise  the  State Financial  Corporations  (SFCs)  many of  which  are  sick  today  incapacitating  them  to  carry  out  their mandated role and if so, the details thereof and the manner in which the State Governments are likely to be associated in the revival/restructuring of SFCs;
- b) whether the State Industrial Development Bank of India (SIDBI) has decided to gradually phase out refinance support to SFCs, if so, the details thereof and the reasons therefor;
- c) the  details  of  policy  adopted  by  the  Government  on  the  Micro,  Small  and  Medium  Enterprises (MSMEs) and the manner in which the same is being implemented; and
- d) the measures taken/ proposed to be taken to maintain a balance between SFCs and MSMEs?

## ANSWER (MINISTER OF STATE IN THE MINISTRY OF FINANCE)

## (SHRI JAYANT SINHA)

- (a) Based  on  the  Gupta  Committee  recommendations,  Government  of  India  had  advised  the  State Governments  to  consider  recapitalization  of  SFCs  after  establishing  their  long  term  viability  and relevance. Only  10  State  Governments  viz;  Delhi,  Haryana,  Kerala,  Karnataka,  Madhya  Pradesh, Andhra Pradesh, Orissa, Rajasthan, Tamil Nadu and West Bengal recapitalized their SFCs to some extent by cash infusion and/or by way of pass through mechanism.

Small  Industries  Development  Bank  of  India  (SIDBI)  entered  into  Memorandum  of Understanding  (MoUs)  with  11  SFCs  for  the  revival  of  these  SFCs.  As  per  the  MoU,  State Governments  made  commitments  to  also  meet  specified  obligations.  As  on  date,  the  MoUs  have lapsed and no further renewal is proposed.

- 7  SFCs did  not  sign  the  MoU  as  the  MoU  conditions  were  not  acceptable  to  the  respective  State Governments / Corporations. Out of 18 SFCs, only 8 SFCs are in operation now.
- (b) SIDBI has decided to gradually phase out its SFC portfolio. This was done to ring fence SIDBI from the  existing/likely  loss  on  SFCs  portfolio  due  to  reduced  income  and  requirement  of  higher provisioning upon slippages of more SFCs to Non Performing Asset (NPA) which adversely impact the profitability and credit rating of SIDBI.
- (c) Policy action for the development and promotion of   Micro, Small and Medium Enterprises (MSME) inter-alia  includes implementation  of MSME  Development  Act,  2006,  National  Manufacturing Competitiveness Programme, implementation of recommendations of Prime Minister's Task Force on MSME, Public Procurement Policy for Goods Produced and Services rendered by Micro and   Small Enterprises (MSEs), E-Governance  initiatives, assisting States in their efforts to  encourage entrepreneurship,  employment  and  livelihood  opportunities  and  enhance  the  competitiveness  of MSMEs in the changed economic scenario etc.
- (d) Credit gaps in MSME eco-system are being progressively bridged by financial intermediaries such as Scheduled Commercial Banks, Financial Institutions, Non- Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs) etc. Policy support is additionally provided through Priority Sector Guidelines of the Reserve Bank of India (RBI) which cover lending to MSMEs.
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