Prevention and Remedies of industrial sickness

ByMHENDI HASAN & PIYUSH KUMARJAISWAL

SYMPTOMS OR SIGNALS OF SICKNESS

Delay in payment to bank and financial institutions. Irregularity in the bank account. Poor maintenance of plant & machinery. Excessive turnover of personnel. Decline in price of equity shares and debentures. Low turnover of assets i.e. assets dont generate the revenue which is generally accepted. Frequent requests to banks and financial institutions for additional credit.

BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR)

BIFR steps to handle a sick company An inquiry held to confirm whether the company is sick. If so, BIFR has to determine whether comp. can make its net worth +ve through its own efforts. If not, a finding recorded that is it in public interest to attempt to rehabilitate the company. The rehabilitation effort begin commissioning an operating agency to prepare techno viability report. Based on viability report BIFR draft a scheme. It is advertise inviting comment and objection. Ultimately BIFR give recommendation i.e.- Take over by partner, sale & closure of sick unit.

PREVENTIVE MEASURES AND ROLE OF CONCERNING AGENCIES :

following agencies have different role to prevent the industrial sickness Term

Lending Institutions. Commercial Banks. Entrepreneur. Government.

ROLE OF TERM LENDING INSTITUTIONS

Appraisal of Management. Banning Industries Not Having Scope. Machinery & Equipment. Satisfactory Implementation.

ROLE OF COMMERCIAL BANKS

Careful Project Appraisal. Timely disbursement. Establishing Co-operation with term lender. Warning Signals. Market Intelligence. Stemming Sickness.

THE ROLE OF THE ENTREPRENEUR

Management Board. Considering term lender as Partners in Enterprise.

The Role of the Government

Sudden changes in industrial policy. Resistance to change. Power to change.

OTHER PREVENTIVE MEASURES Proper Implementation of announced policy. Development of small scale industry. Monitoring of saturation in particular industry sub sector. Development of linkage industry. Development of data bank . Educated entrepreneur with technical knowledge should encourage. Every bank and financial institution should have a "Project Rehabilitation Cell" manned by the experts of various disciplines

RBI COMMITTEES ON SICK UNITS

TANDON COMMITTEE It suggested a two-pronged strategy to effectively deal with industrial sickness. The first was the intervention by the Banks, who had given loans and advances to the unit, in their management. Secondly, it suggested the reorganization or the financial structuring of the units including reliefs like additional financial assistance, rescheduling of existing loans.

H.N RAY COMMITTEE

In 1976, the Government of India constituted a committee under the chairmanship of Shri H.N. Ray, the then Secretary of the Ministry of Finance, Government of India. This Committee was asked to look into the question whether it was feasible to merge productive enterprises which were in financial difficulties or were sick with healthy units, so that the combined undertaking could function more effectively. The Committee submitted its Report to the Government in July 1976, making certain recommendations.

WORK DOE BY TIWARI COMMITTEE

In 1981, the Reserve Bank of India constituted a Committee under the chairmanship of Shri T. Tiwari, Chairman of the Industrial Reconstruction Corporation of India. It was decided that the Government should also participate in this Committee so that the Committee could examine the issues comprehensively and make its recommendations to prevent industrial sickness and the measures that should be adopted, including legislative measures, to revive the industrial undertakings which had already become sick. Thus, the Government appointed representatives of the Ministries of Finance (Banking Division), Industries (Department of Industrial Development), and Law (Department of Legal Affairs).

THE HASIB COMMITTEE

Committee, constituted by Reserve Bank of India in 1986 under the Chairmanship of Shri A Hasib, the then Executive Director of the Bank. Based on the recommendations of this Committee, RBI issued detailed guidelines in 1987 for rehabilitation of sick SSI Units. These guidelines relating to definition of sick units, nature of reliefs and concession, etc.

STATE LEVEL INTER INSTITUTIONAL COMMITTEES (SLIICS)

This Committee chaired by the Secretary, Industry of the concerned State Government were constituted by RBI in the late 1970s in all the States. It provides a forum for adequate interface between the State Government officials and State level institutions on the one side and the term lending institutions and banks on the other. A subcommittee of SLIIC has also been set up wherein the borrowers and concerned banks discussed the issues of rehabilitation

CONTINUE
RBI had issued detailed guidelines on March 26, 1981 on the constitution of SLIIC. As per above guidelines, the Secretary (Industries) of the concerned state government would be the Chairman of the Committee and Director, SISI, representatives of SFC, SIDC, IDBI and 3-4 banks with majority presence as members. Reserve Bank is the convener. The major function of the forum was to monitor / review cases of rehabilitation of sick SSI units

THE KOHLI WORKING GROUP, 2002

The RBI set up a Working Group in 2002 under the Chairmanship of Shri S. S. Kohil, Chairman, Indian Banks Association to review the existing guidelines in regard to rehabilitation of sick units in the small scale industrial sector and to recommend the revision of guidelines making them transparent and non-discretionary

REVIVAL PROGRAMMES
Settlement

with the creditors. Provision of additional capital. Disinvestment Disposals. Modernization of plant& machinery. Reduction in manpower.

CONT..
Strict

control over costs. Change of management. Workers participation. Merger and acquisition with healthy firms. Diversification of the company.

HEALTHY UNIT

Neglect & Inaction

TENDING TOWARD SICKNESS

Prev. & corr. Action taken

Further Delay Further deterioration and nonviability

INCIPIENT SICKNESS

Prev. & corr. Action taken Remedial measure

SICKNESS

DEATH

OTHER

Industries (Development and Regulation) Act, 1951. Sick Industrial Companies (special provisions) Act, 1985 Industrial Reconstruction Bank of India (IRBI).

CONCLUSION
There is need to carry out a detailed study of sick units in the sector. In particular, it is appropriate to draw lessons from both successful as well as failed cases in rehabilitation. Government should hike its spending to motivate and boost the Small scale sector in the country. So finally we can say that only financial and management rehabilitations of the sick units will not bring the desired result unless Govt. assistance in the form of reduced taxes, duties, concessions on various charges like gas, electricity & oil etc. .

THANK YOU