Gujarat State Financial Corporation Management Discussions.

I. (a) Industry structure and developments:

Gujarat State Financial Corporation is established under the State Financial Corporations Act, 1951 as a State level development financial institution to provide medium and long term credit to small and medium scale industrial undertakings in the State of Gujarat and Union Territories of Dadra and Nagar Haveli. The micro, small and medium enterprises (MSMEs) has been accepted as the engine of economic growth and for promoting equitable development. The labour intensity of the sector is much higher than that of large enterprises. The MSMEs play a vital role in the overall growth of industrial economy of the country. Corporation acted as conduit for channelizing funds to MSMEs at a time when banks and other financial institutions were hesitant to extend long term assistance to first generation entrepreneurs. Post-liberalization, operations of most of the SFCs have reduced over the years owing to a large amount of money blocked in as NPAs and inability to withstand the competition from banks and other financial institutions. Corporations fortune was also dwindled and as a result, Corporation was compelled to discontinue the main functions of sanction and disbursement since FY 2001-02.

(b) Opportunities and Threats

MSMEs are the backbone of the Indian economy. It acts as a breeding ground for entrepreneurs to grow from small to big. MSMEs, being less capital intensive, one of the biggest employment generating sector and effective tool for promotion of balanced regional development, SFCs played a vital role by extending financial assistance to them. Gujarat being one of the most industrialized States in the country, there is no dearth for opportunities to the Corporation. Notwithstanding the fact that ample opportunities are available, Corporation is not in a position to exploit the opportunity owing to variety of circumstances. Corporation turned into red, mounted with 100% NPA and net-worth eroded long back. Corporation is not in a position to mobilize resources and to cater to the requirements of industry in the present circumstances.

(c) Segment-wise performance:

Corporation is operating in a single segment viz. financial institution. Since the main functions have been discontinued, it is engaged in recovery function only for the last seventeen years. During the year under reference, Corporations recovery of dues increased by 35.22% and stood at Rs.11.71 crore over Rs.8.66 crore reported in the previous year.

(d) Outlook:

In the present scenario, vast opportunities are available for development of MSMEs particularly schemes like Make in India, Digital India initiative, start-up etc., are encouraged vigorously. Corporation is contemplating to revive its main activities in the near future for which the road map is being drawn.

(e) Risks and concerns:

Corporation is not free from various risks associated with the business. As reported in previous occasions, the areas serviced by the Corporation are being serviced by Banks and other financial institutions including Non-Banking Financial Companies thereby increasing competition resulting into declining the fortunes of SFCs. Moreover, new customized and innovative financing schemes are being created by Banks and other financial institutions to attract MSMEs. On the other hand, SFCs are struggling to mobilize resources and to attract customers with various schemes. To make matter worse, the Loan Asset Portfolio of the Corporation has turned into 100% Non- Performing Assets. Recovery from NPA, accumulated from the past, requires lot of time to be spent and resources in managing these stressed assets. When the loan is not backed by assets, it is practically difficult to recover the dues. Corporation is, thus, facing the risk of losing the amount financed by it.

(f) Internal control system and their adequacy:

The Corporation has proper and adequate system of internal controls proportionate to its size and business. Corporation engaged services of an external firm of Chartered Accountants for internal audit so as to provide timely information to management. The internal control system of the Corporation is designed to ensure that the financial and other records are reliable for preparing financial statements and other data and for maintaining accountability.

(g) Financial Performance:

(Rs. in Crore)

Year ended

Particulars 31/03/2019


Total Income


Interest expenses


Other expenses


Loss before depreciation & tax




Loss before tax


Loss after depreciation & tax


Balance carried over to balance sheet



(h) Material developments in Human Resources:

No material development in human resources took place during the year under reference. Corporations staff strength reduced to 49 as on 31st March, 2019 as against 56 reported in the previous year.

(i) Details of significant changes in key financial ratios:

The key financial ratios have not changed significantly ie., 25% or more as compared to immediately previous financial year.

2. Disclosure of Accounting Treatment:

Till the financial year 2017-18, the accounting policy followed in case of loanees opted for OTS was that the amount received is first apportioned as per normal practice as under:

1. Penalty & Other charges

2. Interest

3. Principal

At the time of issuance of No Due Certificate, the effect of OTS scheme is given whereby amount credited to interest/penalty account during recovery period of OTS which otherwise was principal recovery as per OTS scheme is being given effect. The shortfall in principal account is compensated by crediting interest income and write off of the same amount.

The aforesaid policy has been changed with effect from 1st April, 2018 with the approval of Board of Directors at its meeting held on 13th August, 2018 whereby in case of loanees opted for OTS, amount received from the loanee is apportioned in the following order:

1. Principal and capitalized expenses

2. Interest

3. Penalty and other charges

At the time of issuance of No Due Certificate (NDC), the shortfall in principal account, if any, is compensated by write off of the same amount.

The above change was adopted taking into consideration the fact that Corporation has made 100% provision against outstanding principal disbursed. The said treatment is in line with "Prudential Norms on Income Recognition, Assets Classification and Provisioning pertaining to Advances" issued by SIDBI. As a result of change in accounting policy, interest income decreases with corresponding increase in NPA provision written back. Impact of the said change in accounting policy in respect of units opted for OTS during the current financial year and issued NDC is nil in overall financial results.

As a result of change in accounting policy, out of amount of Rs.435.08 lakh received as recovery during the year under reference, only Rs.242.50 lakh has been recognized as interest income and balance amount of Rs.192.58 lakh has been credited to Principal. Therefore, the interest income and outstanding Loans & Advances reduced by Rs.192.58 lakh and write back of NPA provision increased by Rs.192.58 lakh in the financial statements of the year under reference.

3. Cautionary statement:

Statements in the Management Discussion and Analysis describing the Corporations objective, projections, estimates and expectations may be "forward looking" within the meaning of applicable laws or regulations. Actual results may differ from those expressed or implied.