Industrial Sickness

Presented by:
Nidhi Gupta
 Meaning of industrial sickness
• In simple term a sick unit may mean a unit which
is not healthy in terms of yielding profits and
fetching return on investment

• As defined by SICA, according to act, as industrial

company was defined as sick if:-

1) it was registered for at least seven years;

2) it incurred cash losses for the current and the
preceding
year and
3) it had eroded 50% more of its peak net worth
during any of preceding five financial years.
 Causes of Industrial Sickness
EXTERNAL INTERNAL

1. GOVT. POLICY 1.INEXPERIENCED MANAGERIAL

SKILLS
2. ERRATIC SUPPLY OF INPUTS 2.PAUCITY OF FUNDS

3.LOCATIONAL PROBLEMS 3.ENTREPRENEURIAL INCOMPETENC

4.TECNOLOGICAL FACTORS 4.WEAK MANAGEMENT

5. POWER CUTS 5.OUTDATED/DEFECTIVE PLANT AND

MACHINERY
 Consequences Of Industrial
Sickness
1. Industrial unrest
2. Unemployment
3. Losses of banks and financial
institution
4. Loss to economy and government
 Remedial Measures
• Steps taken by banks

1)Grant of additional working capital

facilities to overcome the shortage of
working capital faced by such units

2)Recovery of interest at reduced rates

3)Suitable moratorium on payment of

interest
 Conti…
• A no. of steps are also undertaken on the organization
form like;
1. Setting up a sick industrial undertaking cell in
Reserve bank of India to function as a clearing house
for information relating to sick units

2. Setting up of state level inter institutional committee

at all the regional officers of the department of
banking operations and developments of RBI for
ensuring better coordination between the banks
 Conti…
3. Constitutions of a standing co-ordination committee
by RBI to consideration the issues relating to co-
ordination between commercial banks and term
lending institutions on an ongoing basis; and

4. Setting up of special cell within the rehabilitation

finance division of industrial development bank of
India for attending to references from banks in respect
of their sick and problem areas.
 Other Measures To Overcome
Industrial Sickness
• IRDA(The industries development and regulation act, 1951,
empowers the central govt. to take over an undertaking or its
management in certain cases
.
• Rehabilitation through state govt. and financial institutions who
would provide both financial and managerial support with
suitable restructuring of management wherever necessary.

• Proposal ,if any, for the merger of sick units with a healthy unit
in the private sector will be examined by the specified authority
under the income tax act,1961 with reference to the guidelines
on the subject.
 Conti…
• RBI took the initiative in the matter of identifying sick industrial units,
and coordinating the lending operations of the term lending institutions
and commercial banks
• Both central and state govt. have taken a no. of steps in past for
development of small and medium enterprises by establishing
development institutions to support entrepreneurs just like

Small Industrial Development Organizations(SIDO)

Small Industrial Service Institutes(SISI)
Small Industrial Development Corporation (SIDCO)
Entrepreneurial Guidance Issue (EGB)
National Productivity Council (NPC)
Venture Capital Funds(VCF)
• Following measures may be taken to turnaround a sick unit:
1. Formulation and implementation of a new strategy
2. Identifying the problem and activating corrective measures to help in revival
of sick units
3. Participative style of decision-making environment
4. Effective administrative and budgetary control
5. Personnel training
6. Performance evaluation
7. Commitment of managers and employees towards revival plans
8. Effective leadership
Conclusion:
To conclude ,the sick units may be attempted to be turned around through
efficient management ,change of top level executive, executing a turnaround
strategy.