Introduction

The inefficiency of the enterprises transforms them into the sick units. Growing incidence of sickness has been one of the major problems faced by the industrial sector of the country. Substantial amount of loanable funds of financial institutions is blocked up in sick industrial units causing not only wastage of resources but also affecting the healthy growth of the Indian Economy.

What is the Sick Unit?

According, State Bank of India, A sick unit is that unit which fails to generate internal surplus on a continuing basis and depends for its survival on frequent infusion of external funds. Thus an industrial unit was defined as sick if: It was registered for at least seven years. It incurred cash losses for the current and the preceding year, and Its net worth has eroded.

Warning Signals of Sick Unit:

Shortage of Liquid Funds to meet Short-Term Financial Obligations and other Statutory Obligations Accumulation of Excessive Inventories Underutilization of Capacity Decreasing Return on Investment Deteriorating Financial Ratios Financing Capital Expenditure out of ShortTerm Sources Other Symptoms:
Rapid turnover of key personnel Existence of a large number of law suits against the company.

Causes of Industrial Sickness

Causes of Borne Sickness:

Wrong Location Inexperienced Promoters Technical Factors Investment in Unproductive Capital Assets Long gestation period Rosy Picture Presented by Consultancy FirmsFaulty Demand Forecasting

Causes of Achieved Sickness

Management Problems Financial Problems Labour Problems Diversion of Resource Failure to Modernize Personal Wasteful Expenditure Poor utilization of Fixed Assets. Inadequate attention towards maintenance management, leading to frequent breakdowns of machinery. Absence of proper costing methods and pricing techniques. Lack of quality control and quality assurance. Inadequate emphasis on research and development. Inadequate material control. Lack of market research and market survey. Inadequate promotional activities.

Government Policy Increased Competition from MNCs Power Cuts Shortage of Raw Material Recession in the Market Dereservation Customers resistance to the units product. Infrastructural problems Poor law and order situation Political interference.

Effects of Industrial Sickness

Setback to Employment Prospects Wastage of Resources Adverse Effect on Related Units Industrial Unrest Adverse Effect on the Investors and Entrepreneurs Losses to Banks Loss of Revenue to Government

Measures Taken by Government

Takeover of the Management Amalgamation with Healthy Units Excise Loans Setting up of Industrial Investment Bank of India (IIBI) Margin Money Scheme: In June 1987, government introduced a scheme known as Margin Money Scheme. Under this scheme, liberal financial assistance was granted to small sick industrial units, at low rate of interest and at lesser security. Establishment of National Company Law Tribunal

Measures Taken by Banks

Recovery of interest at reduced rates. Grant of additional working capital to overcome the shortage of working capital. Writing off the whole or the part of accrued interest. Setting up a Sick Industrial Undertakings Cell in Reserve Bank of India to obtain timely information regarding sick units. Setting up a special cell in Industrial Development Bank of India (IDBI) to identify and solve the problem areas of sick units. Reserve Bank issued guidelines to the banks with a view to ensure that the potentially viable sick units in small scale industries sector get due attention and timely support.