PRESENTATION ON

INDUSTRIAL SICKNESS
BY:

NEHA SINGH
PEMA KHANDO

INTRODUCTIO
N

Industrial sickness has been growing from the last

decade.

Many traditional and modern industries are now

being effected by industrial sickness.

Persisting problems are been faced by the

industrial sector of the country

CONCEPT

MEANING

TO LAYMAN SICK UNIT IS ONE WHICH IS NOT

HEALTHY.
.
TO AN INVESTOR-ONE WHICH SKIPS DIVIDEND.
.
TO AN INDUSTRIALIST-A UNIT WHICH IS
MAKING LOSSES.
.
TO A BANKER-WHICH INCURRED CASH LOSSES
IN PREVIOUSE YEAR & LIKELY TO REPEAT
PERFORMANCE IN CURRENT & FOLLOWING
YEARS

DEFINITION
Industrial sickness is defined in India as "an
industrial company (being a company
registered for not less than five years) which
has, at the end of any financial year,
accumulated losses equal to, or exceeding, its
entire net worth and has also suffered cash
losses in such financial year and the financial
year immediately preceding such financial
year

1- SHORTAGE OF LIQUID
FUNDS TO MEET SHORT
TERM FINANCIAL
OBLIGATION
2- DECREASING RATE OF
RETURN
3- UNDERUTILISATION OF
CAPACITY
4- ACCUMULATION OF
EXCESSIVE INVENTORIES

Causes of industrial
sickness

Causes of born
sickness
1-Wrong location
2- Technological factors
3-Inexperienced
promoters
4-Investment in
unproductive capital
assets
5-Long gestation period

Causes of
achieved sickness
*Internal causes
*External causes

EXTERNAL CAUSES

1-POWER CUT
Lack of power electricity support
Shortage in electricity

2-ERRATIC SUPPLY OF INPUTS

Shortage of raw material
Lack of transportation facility
High price

3-DEMAND AND CREDIT

RESTRAINTS
No equal balance of demand and
supply
Lack of credit facility
Storage expense
Change of out of fashion

4-GOVERNMENT POLICY
Change in government policy
Lack of government support
High authority to large unit

INTERNAL CAUSES
1-FAULT AT THE PLANING AND
CONSTRUCTION STAGE
Wrong location area
Absence of market analysis
Unbalance capital structure

2-FINANCIAL PROBLEMS
Unable to repay
Lack of financial support from banks
and
financial institutions

3-DEFECTIVE PLANT AND

MACHINARY
Lack of technical and professional
skills
Lack of technology
Lack of efficient machinery
High maintenance

4-ENTREPRENURIAL INCOMPETENCE
Lack of market knowledge
Lack of inefficient professional skills
Lack of innovation

MANAGEMENT PROBLEMS
Inefficiency of management
Lack of expertise

LABOUR PROBLEMS
Lack of inefficient labour
Lack of coordination in work
Unsatisfied labour

Industrial sickness is growing

at an annual rate of about 28%
& 13% respectively in terms of
no .of units and outstanding
number of bank credit.
It is estimated that as of today
there are more then 2lakhs sick
unit.
With an outstanding bank
credit of above Rs.7000crores.
Nearly 29000 units are added
to sick list every year.

1-UNEMPLOYMENT
2-WASTAGE OF RESOUCES
3-LOSS ECONOMY AND GOVERNMENT
4-LOSS OF BANKS AND FINANCIAL
INSTITUTIONS
5-INDUSTRIAL UNREST

SUGGESTIONS TO PREVENT AND CURE

INDUSTRIAL SICKNESS

1-Proper project planning

Location of project
Availability of raw material
Availability of labour & technical
staff
Availability of finance at
reasonable rates.
2-Proper Market Analysis
Demand forecasting
Study of opportunities & threats
environment
Consumer tastes & preferences
Availability od reliable distributor
3-Soft loans for sick units
4-Avoid over-capitalisation.

MEASURES

STEPS TAKEN BY BANKS

1-Giving adequate working capital when
there is shortage
2-Recovery of interest reduced rate
3-Defining the special cell in the RBI
4-Arrange the special committee of state
level in local branch for link between the
financial institution and government
agency

POLICY FRAMEWORK OF THE

GOVERNMENT
1-SWOT analysis of industry
2-Liberalisation of sick unit

CONCESSIONS BY THE GOVERNMENT

1-Giving high facilities to large industries
to take over
the small sector for revival
2-High liberalization in terms of financial
rather than
intervention
3-Introduce the scheme for sick industry

SICK INDUSTRIAL COMPANIES(SP

PROVISIONS) ACT,1985 (SICA)
A unit is defined as sick industrial company
where:
A company is registered for not less than
5 years
It incurred cash losses for the current &
preceding financial year.
Its net worth was eroded.
Even 50% or more of the net worth of the
past 5 financial years is eroded because of
Accumulated losses.

Act extend to whole of India

Act is not applicable to SSI
All govt. industrial company
are brought under this act
provides legal identification of
sickness in industrial
organization
Act provides for
establishment of BIFR
Act also establish AAIFR for
hearing appeals against order
of BIFR.

REPORTING TO THE
BIFR
To report the sickness to the BIFR within 60days
of finalisation of audited accounts , for the
financial year at the end which the co has
become sick.
The BIFR prescribes a different format for the
report to be submitted by any interested parties
regarding the sickness. For eg-banks, other
financial institutions.
When a co has been financial by a consortium
of banks, it is the lead bank that should report to
BIFR about the sickness under advice to other
participating bank in the consortium.

-When a case is referred to the BIFR,

it is verified by the registrar of the
BIFR as to whether the co is SICK.
-BIFR accept the cases and notifies a
date for hearing the case.
-invites the information sick co to
come to negotiation with the
concerned financial institutions.
-after the survey and hearing, the
court summons the rehab to an

DEFINITION ACCORDING TO
COMPANIES (2ND AMENDMENT)
AVT,2002

Sick industrial company means an unit which

has
accumulated losses in any financial year
which are equal to 50% or more of its average
net worth during 4 years immediately
preceding such financial years; or
failed to repay its debts within any 3
consecutive quarters on demand made in
writing for its repayment by a creditor or
creditors of such co.

BOARD OF INDUSTRIAL AND FINANCIAL

RECONSTRUCTION (BIFR)

A central govt. agency that helps

restructure bankrupt companies or
close down sick unit.
-HM is the 3rd automobile company to
report in BIFRS door after PAL, the
maker of premier Padmini and FIAT
India.

-Chennai plant is being planned to turn in to

separate entity.
-The Chennai unit does contract manufactur
for auto giants such as Mitsubishi and Isuzu
-It also intends to bring in foreign investmen
its Chennai and West Bengal units.
-it recently launched the the BS-IV Ambassa
encore and is developing a sub-4metre vers
-Besides Ambassador, HM also has winner tr
in its portfolio.
-The company management says overall ve
sales would increase to 7500 units this year

CONCLUSION
In a planned and underdeveloped
laboursurplus economy like India
,industrial sickness can have serious
consequences. The sick units may be
attempted to be turned around through
efficient management, change in top level
executing a turnover strategy
sickness is mankinds greater defect.
HEALTH IS NOT VALUED TILL
SICKNESS COMES