Out of 18 SFCs, 12 SFCs are planning to approach the central government for infusion of fresh capital to the tune of Rs 1,390 crore -- along the lines of recap funds available to banks -- to improve their financial performance.

At present, the rate of recovery of bad debts of SFCs is between 3 per cent and 66 per cent. IDBI, under the chairmanship of G P Gupta, has set up a committee which will tackle issues relating to SFCs. Representatives from all the 18 SFCs are also members of the panel.

The committee will look into issues relating to recapitalisation and restructuring of weak SFCs, the growing NPAs and avenues for resource mobilisation.

According to a top official from Maharashtra State Finance Corporation, SFCs do not haveavenues for raising funds from the market at a cheaper rate. "SFCs should be allowed to operate as local area banks. We can save on the cost of raising funds from the market if the bonds issued by us are tax free," he said.

IDBI has also increased the refinance limit of SFCs to 80 per cent from 65 per cent earlier. The SH Khan committee report on harmonising the role and operations of development financial institutions and banks has suggested gradual reduction of state governments' stake in these corporations below 50 per cent. The Khan committee has also suggested restructuring and reorganisation of strong SFCs and transfer of the existing shareholding of IDBI to SIDBI (Small Industrial Development Bank of India).

The Khan panel report has also stated that in order to enable SFCs to adapt to the emerging changes, it is necessary for them to restructure their organisations and management, broaden their resource base and carry out financial restructuring.

The performance of SFCs has not been impressivein terms of disbursements and sanctions. On the recovery front, SFCs have shown poor growth. For the year ended March 31, 1997, ten SFCs posted profit after tax while five SFCs registered losses. Information about the rest of the SFC are not available.

Four SFCs have achieved capital adequacy ratio (CAR) above the 8 per cent, five have registered CAR between 2.06 per cent and 6.25 per cent and the rest have shown negative CAR.