A sick industrial unit may be defined as one when it fails to generate surplus on a continuous basis and depends on frequent infusion of external funds for its survival.

According to RBI, a sick industrial unit should be considered so if it has “incurred cash loss in the previous accounting year and is likely to continue to incur cash losses to the extent of 50% of those of its net worth.”

It is the important for the industries to become aware of such symptoms sooner than later….

These symptoms may be found at various stage of a project implementation…

Decline in Capacity Utilization

Shortage of liquid funds to meet short term financial

obligations

Inventories in excessive quantities

Non – Submission of data to banks and financial

institutions

Irregularity in maintaining bank accounts

Frequent breakdowns in plants and equipments

Decline in the quality of product manufactured

Decline in technical deficiency

Frequent turnover of personnel in industry

Delay or default in the payment of statutory dues such as

providend fund, Sales tax, exercise duty , employees state

insurance etc

Persisting shortage of cash

Deterioting financial ratio’s

Frequent request to banks and financial institutions for loans

Delays and default in the payment of statutory dues

Morale degradation of employees and desperation among

the top and middle management level

Normal Unit

Functional areas, viz Production ,

Marketing, Finance and personnel are

normal and efficient . Generating

profits, Current ratio is more than

one. Net Worth is positive. Debt

Equity ratio is satisfactory

Tending towards Sickness

Initial deviation in some of the

functional mentioned above. Decline

in profit during last year. Losses

anticipated in current year

Incipient Sickness

Detoriation in the above functional

areas continues. Cash losses incurred

in last year are expected in current

year. Deterioration anticipated in

current year. Although current ratio is

more than one during last year

1. At the implementation stage…

2. When the project has started operations…

3.Position of the cash credit account…

When the management appears to deny institutional discipline by noncompliance with certain vital conditions…..

Lack of commitment on the management’s part for supervision on implementation of the project…..

Undue delay in project implementation….

Lack of coordination with various agencies….

Increase in receivables and payables….

Increase in the rejection rate of the finished product….

Increase in the level of inventories….

Lack of understanding between promoters….

Irregularity in the payment of institutional loans….

Industrial relation problems…..

Cash credit or overdraft account has been overdraft or frequently drawn….

Cheques drawn on such account have been returned unpaid….

Bills drawn by the company remain unpaid for long periods…..

Pledged stocks are overvalued to get additional funds from the government….

Stocks are uninsured…..

EXTERNAL

o Government Policies, Environment & Natural Calamities

o Changes in the industry policies from time to time

o Inadequate and untimely availability of necessary inputs

like raw materials, power, transport and the skilled labor

o Lack and shrinkage of demand for the product

o Recessionary trends hovering in the economy

o Frequent industrial strikes and labour unrest

o Shortage of financial resources especially working capital

o Natural calamities like drought, floods etc

INTERNAL

o Lack of good management

o Poor implementation

o Marketing Problems

o Non-Availability of Raw Material

o Shortfall of working Capital

o Labour Trouble

o Technical/Operational Problems

o Others

Huge Financial losses to the banks and the financial

institutions.

Loss to employment opportunities

Emergence of Industrial unrest

Adverse effect on prospective investors and

entrepreneurs

Wastage of scarce resources

Loss of revenue to the government

Sickness in the SSI sector is attributed to a number of factors like:◦ inefficiency in management◦ overambitious projects◦ dispute among partners, and ◦ non-availability of credit which is one of the major

factors responsible for rendering SSI units sick.

Government of India has taken various measures from time to time to detect sickness at the incipient stage and rehabilitation of sick units in the small-scale sector.

For tacking the problems of industrial sickness in the SSI sector and rehabilitation of sick units, the Reserve Bank of India issued guidelines to commercial banks in February 1987.

It contains:◦ inter- alia, definition of sick SSI units

◦ viability norms, incipient sickness

◦ relief/concessions from banks/financial institutions for implementation of packages in the case of potentially viable sick SSI units.

The Nayak Committee set up by the reserve bank of India in 1991 to deal with aspect of adequacy and timeliness of credit to SSIs went into the issue of sickness in detail.

The Reserve Bank of India took action on its recommendations which related to a modified definition of sick SSI units.

RBI’s actions:◦ It reduced rate of interest for rehabilitation◦ prompt viability studies/nursing programmes of

identified sick units◦ head office to deal with sick industrial units and

provision of expert staff, including technical personnel to look into technical aspects.

The RBI also advises its officers from time to time to activate State-level Inter Institutional Committee (SLIIC).

To set up a sub-committee of SLIIC in all the states/UTs to invite SSI entrepreneurs, bankers and concerned government departments to discuss and arrive at the rehabilitation package

Meeting of the sub-committee to be held every two months.

To set up district level committee of SLIIC in districts having SSI concentration, have been conveyed to all State governments for implementation.

The RBI set up a one-man committee under the chairmanship of Mr. S.L. Kapur, former Secretary (SSI & ARI), to look into various problems relevant to credit flow to the SSI sector and suggest appropriate measures for their redressel.

The committee in its report submitted to the RBI, recommended the following so that sick SSIs are rehabilitated quickly –

◦ if any one of the borrowal accounts of the unit remains sub-standard for six months that is, principal or interest in respect of any of its borrowal accounts has remained overdue for a period exceeding one.

To encourage bank to take up rehabilitation of potentially viable sick SSIs, some relaxation in income recognition and asset classification norms should be provided.

A period of one year both for the additional exposure as well as old outstanding advances to such SSI units should be permitted.

These facilities treated as standard advanced for a period of one year after which the classification should be changed depending upon the record of recovery.

In a market- oriented economy, SSIs must put greater emphasis on pragmatic planning of their functions and discover new markets with innovative product or services.

Success for an SSI depends upon Accessibility to market information and using the same effectively in business operations.

The Internet has revolutionized the world and SSIs must become net savvy especially in marketing their products.

More thrust should be given to R&D for product innovation, quality improvement, cost reduction, and so on.

More attention must also be focused on promoting professionalism in management and providing frequent training to update entrepreneurial skills and so on.

The infrastructure facility should be improved by the state to enable a smooth functioning of the SSI activities.

The modernization of plant is of utmost importance at present among the…… to the strengthen their competitive edge and for which the government should assist by providing adequate finance at liberal terms.

The SSIs must give attention to adequate marketing arrangements with the prospective buyer to get regular orders and also undertake continuous market research.

The products if SSIs are widely advertised in the media for adequate publicity and the for better reach.

Identification and detection at the initial stage is the first measure to detect and reduce industrial sickness.

Financial institutions and banks should initiate corrective actions based on diagnostic studies.

Attempts should be made to restore sick units by handing it to someone else before the situation gets out of control.

In view of limited resources:

◦ Large number of Sick units may have to be permitted to close/liquidate;

◦ A fewer number of sick units may be picked up for revival/rehabilitation

◦ A large number of weak units may be combined together to prevent sickness

In any scheme of reconstruction of a sick unit, all the stakeholders should bear sacrifices on equitable basis.

The important criterion for take-over of a sick unit is whether the company has : ◦ Skill◦ Technology and ◦ Finance to save.

Incentive should be provided to professional managers helping in reviving sick units.

The management, labor, financial institutions differ in their attitude towards the sick units.

Management seeks freedom to close the unit.

Financial institutions want the maximum salvage.

Labour view is that they don’t want to lose their job and they needed the benefits.

The interests of all the three have to be integrated and met.

Board for Industrial and Financial Reconstruction (BIFR) helps the SSI’s to get rid of their financial problems.

Apart from financial lacking, small scale units lack in managerial efficiency, marketability of products, adequate availability of power and raw material.

So the guidance to develop all these areas is essential.

If a decision regarding rehabilitation of a sick unit is taken then it has to be speedily implemented.

This is because timely help is very essential for recovery of any sick unit.

The government of India and RBI guides agencies like BIFR and provide information on sickness and actions to be taken on rehabilitation.

Past experience indicate that many industrial units fall sick due to poor opportunity utilization by entrepreneurs.

A SSI entrepreneur may have one or two ingredients but not all.

For e.g., he/she may have land, building, machinery etc.

But he may lack in functions areas like production, marketing etc.

Therefore the entrepreneurs should be imparted knowledge about various functional areas through training programs like EDP.

SSIs will have to make special efforts for collection of their dues for their growth.

It is essential that SSIs familiarize themselves with inventory control techniques to reduce the cost of working capital.

Vasant Desai P.No: (739-752)