CHAPTER 4

EVALUATION OF THE EFFECTIVENESS OF THE

REHABIILITATION SCHEMES OF THE BIFR
4.1 Introduction
The BIFR initiates steps to rehabilitate all viable sick industrial
undertakings reported to it. In this process the Board sanctions a rehabilitation
scheme to be implemented for a period of seven to ten years. A rehabilitation
scheme is considered successful only if the company is able to make its networth
positive during the period of implementation of the scheme. Hence an evaluation
of the success and the failure rates of the rehabilitation schemes is the only
measure to judge their efTectiveness in rehabilitating sick units.
As on 3 1 July 2000, the BIFR had registered 3 1 10 references of which
rehabilitation schemes were implemented in 708 companies, winding up notices
issued in 960 cases and 572 cases were dismissed as non-maintainable. Eight
hundred and seventy references remained at the preliminary stage of enquiry.
Among the 708 companies for which rehabilitation schemes were sanctioned only
277 companies were declared as successful after making their networth positive.
This shows that the success rate is only 8.9 percent of the total number of cases
registered by the BIFR.
4.2 Reasons for the Low Success Rate of Companies Reported to
the BIFR
The high failure rate of the companies reported to the BIFR may be due to
many reasons. The policy of the BIFR to give stress to rehabilitation of sick
companies 'in the public interest' rather than winding up might have increased the
chances of failure. The delay in reporting sickness and determining sickness might
have delayed the timely implementation of the rehabilitation schemes, which
might have adversely affected the success rate. The extension of the cut off dates
for implementing the rehabilitation schemes and the revision of the schemes might
have caused delay in their implementation and failure in many cases. Similarly the
inherent weaknesses of the rehabilitation schemes and their defective
implementation might have resulted in failure in many cases.
In order to verify the reasons for the low success rate with the BIFR, this
chapter aims to evaluate the effectiveness of the implementation of the
rehabilitation schemes in two sections. 'The policy of the BIFR in rehabilitating
sick units, the time taken for reporting sickness and determining sickness along
with the efficiency of the Operating Agencies in determining sickness are analysed
in the first section. The effectiveness of the rehabilitation schemes are evaluated
in the second section by analysing in detail the time taken for sanctioning
rehabilitation schemes, their implementation along with the inherent weaknesses,
if any.
Chapter 4
4.3 Section 1
4.3.1 Delay in Reporting and Determining Sickness
Timely detection of sickness and implementation of a properly drawn
rehabilitation scheme are prerequisites for reviving a viable sick unit. This makes
it clear that timely reporting of sickness and timely determination of sickness are
essential for the timely implementation of a rehabilitation scheme. In order to
study whether timely reporting of sickness by companies and timely determination
of sickness by the Operating Agencies were made, a sample size of 203 companies
reported to the BIFR has been taken and analysed. The present status of those
companies is given in Table 4.1 and its diagrammatic representation in Fig. 4.1
and Fig. 4.2.
Rehabilitation schemes sanctioned:
Declared no longer sick:
Not declared no longer sick:
Rehabilitation measures not initiated:
Winding up recommended:
Dismissed as non-maintainable:
Table 4.1:- Status of Companies Reported to the BIFR
(as on 3 1-07-2000)
References pending with the BIFR
Total
Percentage
to 'Cotal
Status of Companies
Source: Primary data.
Number of
Companies
Chapter 4 89
Table 4.1 points out that out of the 203 cases selected for the study, only
28 companies were declared no longer sick by the BlFR This shows that the
success rate is only 13.8 percent of the total number of cases registered. The
success rate when compared to the 89 companies, for which rehabilitation schemes
were implemented, is only 31.5 percent. In 91 cases winding up notices were
issueddismissed as non-maintainable after an enquiry by the BIFR. This makes it
clear that the performance of the BIFR in rehabilitating sick industrial units has
not been satisfactory.
4.3.2 Policy of the BIFR
The BIFR has clear preference for rehabilitation over winding upi.
Consequently many winding up cases were considered for rehabilitation.
Companies becoming sick due to macro-economic reasons like technological
obsolescence, adverse impact of globalisation, government policy, market
recession and heavy taxation will remain sick so long as such reasons exist. Any
attempt to rehabilitate such units will become futile. But companies, which
became sick due to anomalies in various function& areas such as finance,
production, marketing and personnel, can be rehabilitated by properly
implementing rehabilitation schemes. To evaluate the effectiveness of the
rehabilitation schemes sanctioned by the BIFR in reviving sick industrial units,
180 companies2 were selected and their causes of sickness has been analysed. The
present status of those companies is given in Table 4.2.
1
Goswmi Committee Report as quoted by Pahwa and Puliani in Sick Industries and
BIFR (2000), 5 15.
'Out of the 203 companies selected for the study, 23 companies remained at the
preliminary stage of enquiry. Rehabilitation schemes were implemented only in 89 cases, of
which 28 companies were declared no longer sick.
Among the 180 companies, 124 companies became sick due to the
Table 4.2:- Causes of Sickness and the Status of Companies
anomalies in various functional areas such as production, finance, marketing and
personnel (firm specific reasons). Along with other causes, macro economic
reasons like obsolete technology, adverse impact of globalisation, government
%
68.9
31.1
100.0
Causes
of
sickness
Firm
specific
reasons
Macro-
economic
reasons
Total
Source:
Status of companies
policy and market recession were the main causes of sickness in 56 companies.
No.
of Cos
124
56
180
Primary data.
Among the 124 companies, which became sick due to firm specific reasons 26
companies were declared no longer sick, the success rate being 2 1 percent. Among
Not declared no
longer sick
Declared no
longer sick
the 56 companies, which became sick due to macro economic reasons only two
No. of
Cos
43
18
-- -
6 1
References
rejected
No, of
Cos
26
2
28
companies were declared no longer sick This shows that only 3.6 percent of
Yo
34.6
32.1
No. of
Cos
5 5
36
---
91
%
21.0
3.6
companies that became sick due to macm economic reasons were declared no
Yo
44.4
64.3
longer sick. This shows that it is drflcult to rehabilitate those comjmpies, which
became sick due to macro economic reasons so long as such reasons exist.
Chapter 4 9 1
There is also difference in success rate of the rehabilitation schemes in
companies, which became sick due to firm specific reasons and macro economic
reasons. Among the 124 companies, which became sick due to firm specific
reasons rehabilitation schemes were sanctioned in 69 companies, of which 26
companies were declared no longer sick. The success rate of the rehabilitation
schemes was 37.7 percent. Rehabilitation schemes were implemented in 20
companies selected out of 56 companies, which became sick due to macro
economic reasons. Among them only two companies were declared successfbl.
The success rate of the rehabilitation schemes sanctioned was only 10 percent.
In order to test whether there is any significant relation between the
success rate in companies which became sick due to firm specific reasons and
macro economic reasons, a Chi-square test3 was conducted taking the null
hypothesis that there is no signiJicant difference in success rates between
companies which became sick due to firm speciJic reasurn and macro economic
reasons. The test revealed that at five percent significance level the calculated
value (5.528) is higher than the table value (3.84 1) at one degree of freedom. This
result leads to the rejection of the null hypothesis and it is concluded that the
dlg'erence in success rates between companies, which became sick due to firm
spec f l c reasons and macro economic reasons is statisticalrly significant.
4.3.3 Delay in Reporting Sickness
Proper and timely implementation of a rehabilitation scheme is essential
for the revival of a sick unit. This requires identification and reporting of sickness
in time. Hence SlCA makes it mandatory for a sick industrial unit to make a report
to the BIFR within 60 days from the date of finalisation of the duly audited
accounts. But companies delay the reporting of their sickness to the BIFR, which
For the test only those companies, which were 'declared no longer sick' and 'not
declared no longer sick' afker implementing the rehabilitation schemes were taken.
in turn delays the implementation of the rehabilitation schemes. Delayed reporting
of sickness might have adversely affected the success of the rehabilitation
schemes. The relationship between the time taken by the companies for reporting
their sickness to the BIFR and the success rate among the 180 companies
considered for the study are analysed and given in Table 4.3.
Table 4.3 shows that no company was able to report its sickness to the
BIFR within the prescribed time limit of 60 days. Sixty-one companies took three
to six months to report their sickness to the BIFR. Among them 2 1.3 percent cases
were declared no longer sick by the BIFR. Eighty-one companies took seven to
twelve months to report their sickness to the BIFR and among them 14.8 percent
cases were successful. The reporting of sickness was delayed for more than one
year in the case of 38 companies and among them only 7.9 percent cases were
Table 4.3:- Time Taken for Reporting Sickness and the Status of Companies
Time taken
for reporting
sickness
Less than 2
months
3-6 months
7-12 months
One year and
above
Total
Source: Primary data
No. of
Cos
6 1
8 1
38
180
%
33.9
45.0
21.1
100.0
Declared no
longer sick
No. of
Cos
13
12
3
28
%
2 1.3
14.8
7.9
Status of companies
References
rejected
No. of
Cos
27
40
24
9 1
Not declared
no longer sick
%
44.3
49.4
63.2
No. of
Cos
2 1
29
11
6 1
%
34.4
35.8
28.9
Chapter 4 93
declared no longer sick. This makes it clear that early reporting of sickness to the
BIFR increased the chances of the revival of sick companies.
In order to verify this Karl Pearson's Correlation Coefficient is calculated
(r = -0.135: p = .036). Thus it can be concluded that there is an inverse correlation
between time taken for reporting sickness and the success rate of the rehabilitation
schemes.
4.3.4 Time Taken for Determining Sickness
All references received by the BIFR in the prescribed form are scrutinised
and registration is granted only to those cases, which come under the purview of
the BIFR. But before initiating the rehabilitation measures the Board conducts a
detailed enquiry to determine whether the company has become sick within the
meaning of SICA. Any delay in conducting the enquiry to determine the sickness
in companies reported to the BIFR might have delayed the implementation of the
rehabilitation schemes and their chances of success.
To determine the sickness in a company, the Board may require the
Operating Agency to conduct a detailed enquiry and report the finding within a
period of 60 days. The Board reserves the right to extend this time limit in
desirable circumstances. Taking this loophole as a privilege, the Operating
Agencies might have conducted the enquiry in a leisurely manner resulting in an
extension of the time allotted for enquiry. This delays the implementation of the
4
For conducting the correlation test dummy variables are used. Companies 'declared
no longer sick' and 'not declared no longer sick' are designated as '1' and '0'. Time taken for
reporting sickness to the BIFR is classified into four groups: 1 = up to 2 months, 2 = 3 to 6
months, 3 = 7 to 12 months and 4 = more than one year.
Chapter 4 94
rehabilitation schemes. Table 4.4 points out the time taken for determining the
sickness regarding 180 companies selected for the study and their present status.
Table 4.4:-Time Taken for Determining Sickness and the Status of Companies
Source: Primary data.
The Board was able to determine the sickness of only 16 companies
within the prescribed time limit of 60 days and among them 25 percent cases were
declared successfui. In the case of 86 companies the Board took three to six
months for determining their sickness, in which 17.5 percent cases were declared
successful and 48.8 percent cases were rejected. There was an inordinate delay of
more than six months in the case of 78 companies and among them the success
rate was only 11 -5 percent. This shows that early determination of sickness
increased the chances of rmiving sick industrial units.
Time taken for
enquiry
Within 60 days
3-6 months
More than 6
months
Total 1
To test whether there is any relationship between the time taken for
determining the sickness and the success rate of the rehabilitation schemes Karl
No. of
Cos
16
86
78
180
Status of companies
%
8.9
47.8
43.3
100.0
Not declared no
longer sick
Declared no
longer sick
No. of
Cos
6
29
26
61
No. of
Cos
4
15
9
28
References
rejected
%
37. 5
33.7
33.4
%
25.0
17.5
11.5
No. of
Cos
6
42
43
9 1
%
37.5
48.8
55. f
Person's coefficientS of correlation is calculated (r = -0.08 1 : p = -140). This clearly
points out that there is an imerse correlation between the time taken for
determining sickness a d the success rate of the rehabilitation schemes.
Determination of sickness in a company without delay can help timely
implementation of the rehabilitation scheme. It can also increase the chances of
reviving the company.
There may be differences in the time taken by different Operating
Agencies for determining the sickness in companies allotted to them. The time
taken for determining the sickness in companies allotted to various Operating
Agencies might have varied according to the efficiency of the Operating Agencies
in dealing with the cases allotted. Certain Operating Agencies might be able to
complete the enquiry within the minimum possible time. This might have helped
in the early implementation of the rehabilitation schemes and increased the
chances of revival in those cases.
To evaluate the individual performance of Operating Agencies the time
taken by them to determine the sickness in 180 companies allotted has been
analysed and given in Table 4.5.
%or conducting the correlation test dummy variable are used. Companies
'declared no longer sick and 'not declared no longer sick" are designated as 'I' and '0'.
Time taken for reporting sickness of industrial units are classified into three groups: I =
within 60 days, 2 = 3 to 6 months and 3 = more than 6 months.
Chapter 4 96
Table 4.5:- Time Taken by the Operating Agencies to Determine Sickness
Source: Primary data.
Among the 180 companies taken for the study 157 companies were
allotted to All India Development Banks like IDBI, LFCI, ICICI and IIBI. This
represents 87.2 percent of the total number of references. Among the different
Operating Agencies, ICICI was the most efficient in dealing with the cases allotted
to it. At the same time the performance of IIBI was the worst. ICICI was able to
complete the enquiry of 11.8 percent cases allotted to it within the prescribed time
limit of 60 days, 70.6 percent cases within three to six months and 17.6 percent
cases took more than six months. IIBI completed the enquiry of only 4.5 percent
cases within the stipulated time limit of 60 days, 36.4 percent cases within three to
six months, and in 59.1 percent cases it took more than six months to complete the
enquiry. This shows that there is dzflerence in time taken by various Operating
Agencies in determining the sickness of companies allotted to them.
%
100
100
100
100
100
To test whether there is any significant difference in time taken by
various Operating Agencies a Chi-square test was conducted by taking the null
hypothesis that there is no sipifcant drference in time taken by various
Operating
Agencies
IIBI
1 FCl
IDBI
ICICI
Banks &
SFCs
Total
Within 60 days 3-6 months
No. of
Cos
1
1
8
4
2
16
No. of
Cos
8
11
30
24
13
86
~~~~l no.
of Cos
22
28
73
34
23
180
Above 6 Inonths
%
4.5
3.6
11.0
11.8
8.7
%
36.4
39.3
41.1
70.6
56.5
No, of
Cos
13
16
35
6
8
78
%
59.1
57.1
47.9
17.6
34.8
Operating Agencies. Since at five percent significance level the calculated value
( 1 6.347) is higher than the table value (1 5.507) at eight degrees of freedom the
null hypothesis is rejected and it is concluded that the d~ference in time taken by
various Operating Agencies for determining the sickness of companies a Elotted to
them is sfati~:sticuE/y sigpt@cunt.
There were differences in the time taken by various Operating Agencies
for determining the sickness in companies allotted to them. Certain Operating
Agencies with efficiency and expertise were able to determine the sickness taking
less time compared to others. This points out the difference in the success rate
among different Operating Agencies. The present status of 180 companies has
been malysed and given in Table 4.6 to show the differences in success rate
among the Operating Agencies.
Table 4.6:- Status of Companies Allotted to Operating Agencies
'Table 4.6 shows that among the different Operating Agencies, ICICI was
Operating
Agency
IJBI
IFCI
IDBI
ICICI
Banks and
SFCs
Total
-
the most efficient in dealing with the cases allotted to it. Thirty-four cases were
allotted to the ICICI in which nine companies were declared no longer sick. This
%
No. of
Cos
allotted
Source: Primaty data
22
28
73
34
23
180
-
Status of companies
Declared no
longer sick
12.2
15.6
40.6
18.9
12.7
100.0
References
rejected
Not declared
no longer sick
No. of
Cos
1
1
13
9
4
28
%
4.6
3.6
17.8
26.5
17.4
No. of
Cos
14
18
39
12
8
91
No.of
Cos
7
9
2 1
13
1 1
6 1
%
63.6
64.3
53.4
35.3
34.8
%
-
31.8
32.1
28.8
38.2
47.8
represents a success rate of 26.5 percent. IFC1 reported the lowest success rate of
3. 6 percent. Among the 28 cases allotted to IFCl only one company was declared
successful. This shows that there is difference in success rates among dzferent
Operating Agencies.
To test whether there is any significant difference in success rates among
different Operating Agencies a chi-square6 test was conducted by taking the null
hypothesis that there is no sign dfcant drflerence in the success rates among
dz@rent Operating Agencies. The test revealed that at five percent significance
level the calculated value (5.1 75) is lower than the table value (9.48) at four
degrees of freedom. It leads to the acceptance of the null hypothesis and it can be
concluded that the dzference in success rates among different Operating Agencies
is statistically not significant.
4.4 Section 2
4.4.1 Evaluation of the Effectiveness of the Rehabilitation Schemes
The BIFR does not initiate steps to rehabilitate all sick companies
reported to it. Only those units, which are found 'viable' after a techno-economic
viability study and those found necessary 'in public interest' are rehabilitated. This
makes it clear that only a portion of the sick companies reported to the RIFR are
rehabilitated and all non-viable sick companies are advised to wind up. But
majority of the rehabilitation schemes sanctioned by the BlFR were not declared
successful. That might be due to many reasons.
Timely implementation of the rehabilitation schemes being a prerequisite
for their success, delay in preparing and sanctioning the rehabilitation schemes
after arriving at a consensus among all participating agencies might have affected
o or the test only those companies, which were declared 'no longer sick' and 'not
declared no longer sick' after implementing the rehabilitation schemes were taken.
their success adversely. The defective implementation and the inherent
weaknesses of the rehabilitation schemes also might have affected their chances of
success.
Timely implementation of a properly drawn rehabilitation scheme is a
prerequisite for its success. Where the sick company has already implemented a
rehabilitation scheme the Board may approve the continuation of such a scheme
when it is satisfied that the company would be able to make its networth positive
within a reasonable period. Normally well-managed companies may take steps to
cure sickness by implementing their own rehabilitation schemes as soon as
symptoms of sickness are discovered. This helps the BIFR to implement the
rehabilitation schemes without any delay.
Where the company has no rehabilitation scheme of its own, the Board
appoints the Operating Agency to formulate a rehabilitation scheme for the
company. The Operating Agency has to prepare the scheme in consultation with
all participating agencies and the BIFR can sanction the scheme only after arriving
at a consensus among the participating agencies. It is a time consuming process
and it may affect the timely implementation of the rehabilitation scheme and the
chances of revival of the company.
To test whether there is any difference in success rates among the
rehabilitation schemes of companies and that of the Operating Agencies, 89
rehabilitation sc,hernes sanctioned by the RIFR have been analysed and given in
I'able 4.7.
Table 4.7 shows that in seven companies the BIFR had given approval for
the continuation of already implemented rehabilitation schemes and among them
five companies were declared no longer sick, the success rate being 7 1.4 percent.
In the case of 82 companies rehabilitation schemes prepared by the Operating
Agencies were sanctioned and among them 23 companies were declared
successful, the success rate being 28 percent. This shows that there is drfSerence
in success rates among the rehabilitation schemes of companies and that of the
Operati~zg Agencies.
Table 4.7:- Nature of Rehabilitation Schemes and Status of Companies
To test whether the difference in success rate among the rehabilitation
schemes of companies and that of the Operating Agencies is statistically
significant, a chi-square7 test was conducted by taking the null hypothesis that
there is no signr;ficant dzflerence in the success rates among the rehabilitation
schemes of the companies and that of the Operating Agencies. It was found that at
five percent significance level he calculated value (5.641) is higher than the table
o or the test only those companies, which were 'declared no longer sick' and
'not declared no longer sick' after implementing the rehabilitation schemes, were taken.
-.
Nature of rehabilitation
schemes
Schemes of companies
Schemes of BIFR or OAs
Total
-- -
Source: ~rimarydata.
%
7.9
92.1
100.0
No-of
Cos
7
82
89
Status of companies
Declared no longer
sick
Not declared no
longer sick
No, ofCos
5
23
28
No. ofCos
2
59
6 1
%
71.4
28.0
P
%
28.6
72.0
value (3.84 1 ) at one degree of freedom. This result leads to the rejection of the
null hypothesis and hence the conclusion is that the diference in success rates
between the rehabilitation schemes of companies and that of the Operating
Agencies is statistically signzjkant.
?'he adoption of an already implemented rehabilitation scheme helped to
avoid all procedural delays associated with the BIFR in arriving at a consensus
among the participating agencies. That might be the main reason for their high
success rate. The low success rate of the new rehabilitation schemes prepared by
the Operating Agencies might be due to the delay in preparing, sanctioning and
implementing them.
To test the relationship between the time taken for sanctioning the
rehabilitation schemes and their success rate, the time taken by the Operating
Agencies for preparing and sanctioning new rehabilitation schemes in 82
companies have been analysed and their present status is given in Table 4.8.
Table 4.8
Time Taken for FinaIising Rehal
1 1
Time taken for sanctioning
rehabilitation schemes
/ Within I year
I
1-2 years
1 l 9
2-3 years
I 35
3-4 years
1 20
/ 4 years and above
I
LL.. to^^ .-
ilitation Schemes and Status of Com~anies
Status of companies
kcl ared no longer I Not declared no
longer sick
" k k k
Source: Primary data.
Table 4.8 shows that the BIFR could not sanction any rehabilitation
scheme within one year. There was a success rate of 42.1 percent in cases where
rehabilitation schemes were sanctioned within a period of one to two years and it
has reduced to 37.1 percent and 10 percent respectively in cases of rehabilitation
schemes sanctioned within two to three years and three to four years. No revival
is reported in cases where it took more than four years to finalise rehabilitation
schemes, This shows that the delay in implementing the rehabilitation schemes
reduced the chances for revival of the companies.
To test whether there is any relationship between the time taken for
implementing the rehabilitation schemes and the success rate of the schemes, Karl
Pearson's correlation coefficientX is calculated (r = -0.322: p= ,002). Thus it can
be concluded that there is an inverse correlation between the time taken for
implementing the rehabilitation schemes and the success rate of the schemes.
The delay in finalising the rehabilitation schemes might be due to the
delay by the Operating Agencies or due to the time consuming BIFR process in
arriving at a consensus among the participating agencies. Table 4.9 analyses the
difference in time taken by different Operating Agencies for finalising the
rehabilitation schemes in companies allotted to them.
a
For conducting the correiation test dummy variables are used. Companies
'declared no longer sick' and 'not declared no longer sick' are designated as ' I ' and '0'.
Time taken for sanctioning the rehabilitation scheme is classified into five groups: 1 =
less than one year, 2 = 1 to 2 years, 3 = 2 to 3 years, 4 = 3 to 4 years and 5 = more
than 4 years
Chapter 4
Among the Operating Agencies ICTCI was the most efficient in finalising
the rehabilitation schemes for companies allotted to it while the performance of
IlBl was the worst. Fifteen companies were allotted l o the ICICI in which
rehabilitation schemes for six companies were finalised within a period of one to
two years, seven schemes within two to three years and only two schemes took
more than two years for their finalisation. Among the nine companies allotted,
IIBl was able to finalise rehabilitation schemes of only one company within a
period of one to two years. Two cases took two to three years, five cases, three to
four years and in the case of one company it took more than four years to finalise
its rehabilitation schemes.
Table 4.9:- Time Taken for Finalising Rehabilitation Schemes - OA wise
To test whether there is any Operating Agency-wise difference in time
taken for finalising the rehabilitation schemes a Chi-square test was conducted
taking the null hypothesis that there is no sign$cant dlference in the time faken
by the Operating Agencies in f i finalising the rehabilitation schemes. The test
revealed that at five percent significance level the calculated value (12.901) is
lower than the table value (21.026) at 12 degrees of freedom. It leads to the
acceptance of the null hypothesis and it can be concluded that the difference in
ppdI 1 1 : 1 ; 1 ; 1
1 ; : I
' r~t d 19 3 5 20 82
Source: Primary data. Note: OA = Operating Agency.
4 years
and above
I
. --
2
3
3-4
years
5 -
4
6
Total
9
. -
13
34
--
2-3
years
. 2
5
18
-
1-2
year
I
2
7
Operating
Agency
IlBI
-- "
IFCI
lDBl
JCICI
Less than
one year
. -
Chapter 4 1 04
time taken hy various Operating Agencies in finalising the rehabilitation schemes
is statisaicallj~ not signi>cunt.
4.4.1.1 Extension of Cut-off Date and Revision of the Schemes
The quasi-judicial nature of the BIFR proceedings, which depends on
consensus at all stages, is a time consuming process. The conflicting interests of
the participating agencies makes it difficult to arrive at a consensus. Financial
Institutions are only interested in recovering their dues, employees try to limit
their sacrifices and the promoters are interested in protecting their interests by
implementing their own schemes. This results in exercising veto power by the
participating agencies when the scheme includes terms and conditions detrimental
to their interest. This necessitates repeated sitting of the Board to arrive at a
consensus on the scheme to be sanctioned. Throughout the process debates are
carried out without sufficient analyses and understanding of discounted cash
flows, balance sheet projections, the market position of the firm and the status of
the industryg, As the deliberations meander on, the delays create their own
complications necessitating extension of cut off dates and/or revision of the
schemes.
Among the 89 companies selected for the study, cut off' dates for the
implementation of the rehabilitation schemes were extended in 68 cases. In 21
cases, schemes were implemented without the extension of cut off dale. This
shows that the cut off dates for the implementation of the rehabilitation schemes
were extended in 76.4 percent cases. Among the 68 companies, which extended
the cut off'dates, revision of the schemes were made in 40 cases. This accounts
for 44.9 percent of the total number of companies for which rehabilitation schemes
were implemented. Table 4.10 exhibits the present status of 89 companies.
-
'~oswarni Committee report as quoted by Pahwa and-~uliani in Sick Industries and
BIFR (20001, 5 16.
classified on the basis of rehabilitation schemes implemented with and without the
extension of cut off dates and revision of the schemes.
Table 4.10:-Extension of Cut off date and Revision of Rehabilitation Schemes
Table 4.10 shows that among the 2 1 companies, which implemented the
rehabilitation schemes without the extension of cut off dates, 57.1 percent cases
were declared no longer sick and in the case of rehabilitation schemes
implemented afier the extension of cut offk dates the success rate was only 23.5
percent. This low success rate was mainly due to the delay caused in implementing
the rehabilitation schemes due to the extension of cut off dates and revision of the
schemes.
4.4.1.2 Defective Implementation of the Rehabilitation Schemes
Status of companies
Proper implementation of a rehabilitation scheme is a prerequisite for its
success. The proper implementation of the rehabilitation scheme is possible only
if all the participating agencies make their commitments in time. Any failure in
extending the agreed support or partial fulfillment of the promises by any of the
participating agencies will result in partial implementation of the rehabilitation
scheme. Normally, participating agencies withdraw their suppon to the scheme
when the performance of the company does not improve as envisaged in the
%
76.4
Cut of f
date
Extended
--
Nature of schemes
No
of
Cos
68
Original
28
Declared "O
longer sick
Source: Primary data.
23.6
100.0
Not
extended
Total
Revised
40
2 1
49
Not declared no
longer sick
No:of
Cos
16
21
89
0 -
-- 40
No:of
Cos
52
%
23.5
%
76.5
rehabilitation scheme. To study the impact of the extent of support provided by the
participating agencies on the success of the rehabilitation schemes the present
status of 89 companies selected for the study has been analysed and given in Table
4.11.
Table 4.1 1 :- Extent of Implementation of Rehabilitation Schemes
Nature of rehabilitation
schemes
Fully implemented
Partially implemented
Total
Status of companies
No.of / / Declared no I Not declared no
Cos 1 % 1 longer sick / longer sick
Source: Primary data.
The table shows that in 74 companies the implementation of ihe
rehabilitation schemes were completed and among them 37.8 percent cases were
declared no longer sick. In 15 companies the implementation of the rehabilitation
schemes could not be completed and none of them were declared no longer sick.
This shows that the failure of the participating agencies in extending their
commitments affected the implementation of the rehabilitation schemes in 1 6.9
percent cases and resulted in their total failure.
The delay in extending support by the participating agencies also might
have delayed the implementation of the rehabilitation schemes, which in turn
might have affected their chances of success. In order to verify that, the timeliness
of the extension of support by the participating agencies to the 74 rehabilitation
schemes implemented has been analysed and given in Table 4.12
Table 4.12:- Extent of Support by the Participating Agencies
Primary data.
Note: DNLS = Declared No Longer Sick NDNLS = Not Declared No Longer Sick.
Participating
Agencies
Financial
Institutions and
Banks
Governments
The Banks and Financial lnstitutions extended timely support tu 53
companies and among them 26 companies were declared no longer sick. This
shows that the success rate is 49 percent. They have delayed the extension of
support to 21 rehabilitation schemes. Among them only two companies were
declared no longer sick, the success rate being 9.5 percent. The governments
timely extended support only to 3 1 rehabilitation schemes and delayed the support
in 43 cases. Among them 17 timely support cases and 1 1 delayed cases were
declared no longer sick. The success rates were 54.8 percent and 25.6 percent
respectively. Promoters and labour delayed the support in nine and four cases
respectively and none of them were declared successful.
4.4.1.3 Weaknesses of the Rehabilitation Schemes
Promoters
-.
A sick industrial unit can be brought back to normal health only by
improving its operating efficiency. Hence the rehabilitation schemes included
proposals for increasing sales, enhancing productivity, reduction in cost of
production and interest to improve the operating efficiency of the sick units. In
I'imely supported cases
NO. of
Cos
5 3
3 1
No. of
COs
74
74
Support with extended time
No. of
Cos
2 1
43
DNLS
26
17
NDNLS
2 7
-.
14
DNLS
2
1 1
NDNLS
19
3 2
order to verify the effectiveness of various measures adopted in the rehabilitation
schemes to improve the operating efficiency of the sick units the present status of
89 companies considered for the study has been analysed and given in Table 4.13
Table 4.13:- Measures for Improving the Operating Efficiency
Table 4.13 shows that all the 89 rehabilitation schemes included proposals
to increase sales and among them 3 1.5 percent cases were declared no longer sick.
Measures to improve
operating emciency
.-- -
Increase in sales
Financial restructuring
Increase in productivity
Reduction in cost of
production
Diversification
Along with increase in sales, 77 companies adopted financial restructuring
Source: Primary data.
Status of companies
including measures like reduction in interest, rescheduling of loans, funding of
No. of
Cos
89
77
18
18
I I
interest and One Time Settlement (OTS) of dues. Among them 24 companies
%
100.0
86.5
20.2
20.2
12.4
Declared no
longer sick
were declared no longer sick, the success rate being 31.2 percent.
Eighteen
companies each adopted measures to increase productivity and reduction in cost of
production and they reported a success rate of 38.9 percent and 16.7 percent
Not declared
no longer sick
No. of
Cos
28
24
7
3
7
respectively. Among the 1 1 companies, which diversified their activities, seven
No. of
Cos
6 1
5 3
1 I
15
4
%
31.5
31.2
38.9
16.7
63.6
companies were declared successful, the success rate being 63.6 percent.
Increase in sales and financial restructuring involving reduction in interest
%
68.5
68.8
61.1
83.3
36.4
are the commonly adopted measures to improve the operating efficiency of sick
units. Hence it is essential to evaluate the measures adopted for increasing sales
and reduction in interest to analyse the effectiveness of the rehabilitation schemes
in improving the operating efficiency of sick units.
4.4.1.4 Measures for increasing Sales
Every company requires a desired level of sales to maintain its operating
efficiency and profitability, Poor sales result in poor operating efficiency and in
the accumulation of losses. This is true especially in the case of a sick unit
reported to the BIFR after the erosion of its total networth by accumulated losses.
Hence every rehabilitation scheme projects a desired level of sales to be achieved
in order to bring back the sick unit to normal health.
Sales can be increased by increasing the scale of operation of existing
products or by diversifying the activities of the company into new products.
Among the 89 companies selected for the study, only 11 companies diversified
their activities whereas the remaining 78 companies proposed increase in capacity
utilisation to boost sales. To verify the effectiveness of the measures adopted to
increase sales companies were classified into two groups viz., diversified and non
diversified and their present status has been analysed and given in Table 4.14.
( 1 8 9 1 1 0 0 . 0 ( 2 8 I 1 6 1 1 1
Source: Primary data.
Table 4.14: Effectiveness of Diversification and Nondiversification Measures
Nature of companies
Diversified
No.of
Cos
1 1
1
%
12.4
Status of companies
Declared no
longer sick
No-of
Cos
7
Not declared no
longer sick
%
63.6
No. of
COS
4
%
36.4
Table 4.14 points out that thert: was a high success rate in those
rehabilitation schemes, which included measures to diversify the activities of the
companies into new products when compared to the non-diversified companies.
Diversified companies reported a success rate of 63.6 percent as against 26.9
percent among the non-diversified companies. This makes it clear that
diversification of activities in to new products is the best measure to increase sales
especially in the case ofcompanies which become sick due to low demand for their
producrs.
To test whether there is any significant relationship between the success
rates in the diversified and non-diversified companies a chi-squareto test was
conducted taking the null hypothesis that there is no significant dtfference in
success rates among diversified and non-diversified companies. The test revealed
that at five percent significance level the calculated value (5.862) is greater than
the table value (3.84 1 ) at one degree of freedom. This result leads to the rejection
of the null hypothesis and it is concluded that the d~ference in success rates
between the diversified and nun-diversified sick industrial units is statistically
sign1;ficanl.
One of the main reasons for the failure of the rehabilitation schemes was
the inability of the companies to attain the sales targets envisaged to make the
operations of the company viable. Among the 89 companies selected for the study
55 companies could not achieve the targeted sales envisaged in the rehabilitation
schemes. That might be due to the fixation of sales target at a higher level,
inadequate sales promotion measures and low demand for the products due to the
recession in the industry, technological obsolescence, changes in fashion etc. The
' O~or the test only those companies, which were 'declared no longer sick' and 'not
declared no longer sick' after implementing the rehabilitation schemes were taken.
main reasons for the non-attainment of sales targets in 55 companies considered
for the study have been analysed and given in Table 4.15.
Table 4.1 5:- Reasons for Non-Attainment of Sales Target
1' 1 I 1
I Reasons for non-attainment of sales targets I Number of I Percentage /
I--,
.-A
1 companies / to total
I
Higher sales targets
Inadequate sales promotion
L__ * * I
1 Low demand for the products ( 6 1 10.9 1
Total ( 55 1 100.0 1
Other reasons
. -
1 I I
Source: Primary data
Table 4.1 5 points out that in 43.6 percent cases rehabilitation schemes
fuced sales targets ad higher levels not attainable to the sick companies. In 40
3
percent cases inadequate sales promotion measures and in 10.9 percent cases low
demand for the products were the reas~ns~f or poor sales.
5.5
4.4.1 .S Measures for Reducing Interest
Increased use of borrowed hnds and heavy burden of interest is a
common feature of every sick unit. The inability of the promoters to provide
additional funds required to recoup the cash losses incurred often result in heavy
borrowing. The increased borrowing and its servicing cost affect the profitability
of the company adversely. Hence rehabilitation schemes took measures to reduce
debt and interest cost thereon to improve the operating efficiency of the companies
to make them viable.
One Time Settlement (OTS) of dues with own funds helps industrial units
to get rid of interest charges totally. But the difficulty in raising the required
finance and the unwillingness of the funding agencies make OTS of dues often
diff~cult. Where QTS of dues is not possible reduction in interest cost is made by
making arrangements for rescheduling term loans at reduced rates of interest
waiving penal interest and penal charges. Among the 89 rehabilitation schemes
sanctioned by the BlFR financial restructuring were arranged in 77 cases. The
present status of those companies has been analysed and given in Table 4.1 6.
Table 4.1 6:- Measures of Financial Restructuring
Table 4.16 shows that six companies were able to arrange OTS of dues in
Measure of
financial
restructuring
OTS of dues
Reduction in
interest rate
Other measures
'Total
which four companies were declared no longer sick, the success rate being 66.7
percent. In 67 cases rehabilitation schemes included measures to reduce
Source: Primary data
No. of
Cos
6
67
4
77
interestlinterest rate and among them 32.8 percent cases were declared successful.
Other measures of financial restructuring were adopted in four cases and among
yo
7.8
87.0
5.2
100.0
them only 25 percent cases were declared successful. This points out that the total
eliminationheduction of interest, cost enhanced the chances of revival ofsick units.
Status of companies
Declared no
longer sick
No.of
Cos
4
22
1
27
Not declared no
longer sick
%
66.7
32.8
25.0
No. of
Cos
2
45
3
5 0
9'0
33.3
67.2
75.0
4.5 Factors influencing Success of the Rehabilitation Schemes
The rehabilitation of a sick unit is done by implementing a rehabilitation
scheme. In order to make the operations of the company viable the rehabilitation
schemes include measures to increase sales, reduce cost of production, financial
restructuring and change in management.
Tncrease in sales requires increase in scale of operation andlor
diversification of the activities of the company. Financial restructuring includes
measures to increase capital, increase/decrease borrowed funds and facilitate
rearrangement of borrowed funds. The policies of the government, effects of
globalisation, and the level of implementation of the rehabilitation schemes also
influence the success of the rehabilitation schemes. In order to analyse the impact
of different factors on the success of the rehabilitation schemes Multiple
Regression (linear) analysis is made. For the purpose of the regression analysis
data regarding 40 companies for which detailed fmancial data are available are
considered. These companies are classified in to three groups, 'successhl',
'failed' and 'schemes in operation.' 'Successful' companies include companies
declared no longer sick by the BIFR. 'Failed' companies include those closed
dowdwound up and companies for which, new rehabilitation schemes were
sanctioned. Companies which continue the implementation of the original
rehabilitation schemes sanctioned are classified as 'schemes in operation.' Based
un the aforesaid details it is hypothesised that the success of a rehabilitation
scheme is influenced by sales, costs of production, government policies, effects
of globalisation, extent of implementation of the rehabilitation schemes etc.,
y
= a + b l x l + b2x2 + b3x3 t ............ + bnxn
= result
a = constant
b 1 , b2.. . . . . bn = Regression coefficient.
X I = Delay in reporting sickness.
x2 = Time taken for determining sickness.
x3 = Time taken for implementing rehabilitation schemes.
x4 = Nature of the rehabilitation scheme.
x5 = Extent of implementation of the rehabilitation scheme.
x6 = Implementation of the schemes withlwithout extension of cut off date.
x7 = Co-operation of the Participating Agencies.
x8 = Diversification of the activities of the company..
x9 = Financial restructuring.
x10 = OTSofdues.
x l 1 = Increase in sales.
x12 = lncrease in scale of operation.
x 1 3 = Reduction in cost of production
x 1 4 = Effects of government policy.
x 1 5 = Effect of globalisation
x 1 6 = Increase in equity.
x 1 7 = Additional borrowings.
x18 = Waiver of loans.
x19 = Waiver of interest.
x20 = Reduction in interest.
x2 I = Funding of interest
x22 = Waiver of penal charges.
x23 = Change in management
The test was conducted by taking dummy variables, which are given in
Table 4.1 7.
Table 4.17:- Values of Various Parameters
1
0
2
1
0
1
0
I
0
Result
Reporting sickness
Time taken for determining
sickness
Time taken for implementing
the rehabilitation scheme
Success
Failed
Schemes in operation
Timely Reporting
Late Reporting
Within three months
More than three months
Within one year '
More than one year
-
,.- -
Nature of rehabi litation
scheme
Extent of implementation of
the rehabilitation scheme.
Cut off date for implementing
the rehabilitation schemes
Co-operation of the
participating agencies
Diversification of the activities
of the company.
Financial restructuring
OTS of dues
Increase in sales
-
Increase in scale of operation.
Reduction in cost of
production
Management change
Effect of government policy
Effects of globalisation
lncrease in equity
lncrease in borrowings
Waiver of loans
Waiver of'interest
Reduction in interest
pp-pL.,...--- ,.".
Funding of interest
Waiver of penal charges
Implementation of the
rehabilitation scheme
Already implemented scheme sanctioned
Scheme evolved by the BIFR
Fully implemented
lmplementation not completed
Not extended
Extended
Time1 y supported
Delayedlno support
Activities diversified
Activities not diversified
implemented
Not implemented
OTS of dues arranged
OTS of dues not arranged
Sales increased
Sales not increased
-Scaleof operation increased
Scale of operation not increased
Cost reduced
Cost not reduced
Change in management made
Change in management not made
Positively effected
Negatively/not effected
Positively effected
Negativelno effects
Additional equity raised
Not raised
Additional borrowings made
Not made
Loans waived
Loans not waived
Interest waived
lnterest not waived
Interest reduced
Interest not reduced
Funding of interest made
Funding of interest not made
Penal charges waived
Penal charges not waived
Proper
Not proper
1
0
1
0
I
0
I
0
1
0
1
0
1
0
1
0
I
0
1
0
1
0
I
0
1
0
1
0
I
0
1
0
1
0
1
0
1
0
I
0
I
0
Chapter 4 116
The result of the Multiple Regression test is given in Table 4.18.
Table 4.18:- Multiple Regressions
BORROWM
COST
CUT OFF
DETER
DIVERS
EQUITY
EXTENT
GLOBAL
GOPL
N T FUND
rNT RED
MGTCHG
NATURE
OTS
PENAL
RESTRUCT
SALES
SCALE
SUPPORT
(Constant)
Variables in the Equation
The following variables are excluded because of insignificant values:
IMPLEM LOANWAIV REPORTIN TNTWAIVE
Multiple R 0.87345
R Square 0.76292
Adjusted R Square 0.53769
Standard Error 0.6405
Analysis of Variance
DF Sum of Squares Mean
Regression 19 26.53038 1.39634
Residual 20 8.24462 0.4 1223
Variable B SE B T Beta Sig T
Table 4.18 points out that the regression result is statistically significant
and since R~ = ,7629, it can be stated that 76.29% of the result is explained by the
above-mentioned 23 variables. Among them five variables viz., sales, scale of
operation, support of the Operating Agencies, One Time Settlement of dues and
government policy are statistically significant.