Strategies to Overcome Sickness in Industrial Companies
Explore remedies for overcoming industrial sickness, including definitions, key factors, and the role of various agencies like government, financial institutions, and industry associations. Learn about curative measures, agencies aiding sick units, and important acts like the Sick Industrial Companies (Special Provisions) Act. Discover the crucial role of the government, banks, and organizations in monitoring, supporting, and rehabilitating sick units for industrial growth.
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Presentation Transcript
REMEDIES TO OVERCOME SICKNESS
Micro, small and medium enterprises development (MSMED) Act, 2006 defines the micro, small and medium enterprises as: Manufacturing (Investment in plant and machinery) Service Enterprise (Investment in Eqiupment) Micro Up to Rs.25 Lakhs Up to Rs.10 Lakhs Small Rs.25 Lakhs to Rs.5 Crores Rs.10 Lakhs to Rs.2 Crores Rs.5 Crores to Rs.10 Crores Medium Rs.2 Crores to Rs.5 Crores
A sick industrial company means an industrial company which: had the accumulated losses in any financial year equal to 50% or more of its average net worth during 4 years immediately preceding such financial year or failed to repeat its debt within any three consecutive quarter on demand made in writing for its payment by a creditor of the company.
Agencies concerned with providing solution to overcome sickness Government Financial Institutions Industry associations
Role of Government Role of Banks and Financial Institutions Continuous monitoring of unit. Careful project appraisal. Professional institutional response to unit s problems. Required system at client units. Incentives to units to remain healthy. Role of Industrial Associations Industry association consisting of experts and professional can also aid the sick units by providing managerial and technical support. The government has been helpful for the growth of industrialisation by bringing in liberalization and abolishing licence Raj system. Government plays a very important role in overcoming the industrial sickness.
Curative Measures Measures to overcome sickness can be of two types: Curative Preventive Curative measures include how to cure the sickness after it has crept in.
Agencies which help to cure Industrial Sickness INDUSTRIAL RECONSTRUCTION BANK OF INDIA (IRBI) Came into being on 28th March 1985 by converting the erstwhile Industrial Reconstruction Corporation of India. it provides assistance for reconstruction and rehabilitation of the sick industrial units by granting those loans and advances underwriting shares and debentures, etc. IIBI INDUSTRIES (DEVELOPMENT AND REGULATION) ACT 1951 It provides for the takeover of a sick unit by the government of India. SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 (SICA) It was passed by parliament and received the assent of president in January 1986. It was amended in December 1991 so as to bring government companies within the preview of the act. THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) Came into being in 1987, with vast powers aimed at assessment and implementation of Revival plans for the sick industrial companies.
Preventive Measures And Role Of Concerning Agencies Identification of sick units at the very beginning stage in order to overcome sickness. Merging of sick units with healthy units. Supporting sick units to overcome their financial, marketing, managerial, personnel problem. Providing expert services. Including right mode of communication flow. Bringing in more controls over financial, cost, management and staff. Support in getting active participation of all the stakeholders involved. RBI Commercial Bank Government Entrepreneur Financial Institutions
Role of RBI RBI has been taking kin interest not only reviving the sick units but also influencing the Financial Institutions to provide rehabilitation packages for the sick unit step for Early Detection of Sickness. In order to detect sickness of those companies for those who are not covered under SICA,1985, corrective steps has been taken by RBI. Features: Giving advice to the bank in respect of any industrial unit. Monitoring certain industries through its standing committees. 3. Excise loan: Introduction of excise loan policy by government in October 1989 for the grant of excise loan to weak and sick industrial unit. As per the scheme the selected units will become eligible for excise loan up to 50% of the excise duty paid by unit for last 5 years. 1. 2.
Role of commercial banks Commercial banks can support sick unit in the following ways: Curtailing sickness. Feedback from commercial banks. Market intelligence. Timely disbursement. Vigilant appropriate appraisal. Training program for bank staff. Warning signals.
Various concessions: a) Granting additional working capital. b) Recovery of interest at reduced rates. c) Freezing a part of understanding in the accounts of these units. d) Formation of sick industrial undertaking cell. e) Formation of state level inter institutional committees. f) Formation of standing coordinating committee constituted by RBI for coordinating various issues related to commercial banks and term lending institutions. g) Defining the special cell within rehabilitation financial division of IDBI.
Role of Financial Institutions Many industrial projects are born sick because either suitable appraisal has not been done or market survey has not been carried out while permitting term loan to an entrepreneur. The role of financial institution in the prevention of sickness are as follows: Banning industries. Machinery and equipment. Management appraisal. Satisfactory implementation
Role of Entrepreneur/ Management Identification of internal causes that have led to the sickness and should try to overcome that at the earliest. Appoint a right board or management team, from various disciplines and functions, in order to formalize effective strategies to come of sickness. The entrepreneur should effectively use the finance of the company. He should introduce methodologies in order to reduce cost drastically. He should try to build strategies that can retain the existing customers. He should rectify and overcome any financial personnel, managerial, marketing challenges at the right time. He should take his banker and financial institutions into confidence. He should take a decision at the right time whether it is possible to make the sick units successful or not. If the investment is not viable, a decision should be taken to either merge or sell the sick unit to some other company.
Role of government Changes in industrial policy. Financial support. Administrative ministries. Taking over of sick unit. BIFR. IIBI. SIDF. Modernization fund. Policy measures.
