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The problem of industrial sickness

The problem of industrial sickness

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Published by: Appan Kandala Vasudevachary on Mar 29, 2014
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03/29/2014

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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 Short-Term Sources
Other Symptoms:
 
Rapid turnover of key personnel
Existence of a large number of law suits against the company.

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