Sickness in SSIs

Module 6:

Meaning and definition:

According to Sick Industrial Companies Act, 1985, an industrial company is defined as sick if: 1. It was registered for at least 7 years: 2. It incurred cash losses for the current and preceding year: 3. Its net worth was eroded. According to the State Bank of India, a sick unit is one which fails to generate an internal surplus on a continuous basis and depends for its survival upon frequent infusion of funds. According to IDBI, a unit may be sick if it has defaulted the payment of three installments.

Types/Classification:
Genuine Sickness: As the name indicates, genuine sickness is beyond the control of the persons who float the unit. They may be capable, expert and honest promoters but are unable to prevent their unit from sickness. This means when the capacity utilization of a unit is less than 50 percent of the highest achieved during the preceding five years. Such sickness occurs due to non-viability of the project.

Incipient Sickness:

Induced Sickness:

This is the cause of high magnitude of sick units. The cause is more internal than external. Managerial incompetence, faculty financial structure, etc are some reasons behind induced sickness.

Causes:
External:

Internal:
1. 2. 3. 4. 5. 6. 7. 8. Low quality Poor marketing efforts Faulty capital structure Managerial incompetence Unplanned capital expenditure Excessive growth of inventories Under-utilization of capacity Limited financial base of the promoters 9. Inadequate margins 10.Long credit period 11.Wrong location

1. Power Cuts 2. Non availability of inputs 3. Lack of infrastructure facilities 4. Competition 5. Government policies 6. Unfair exploitation 7. Problems with financial institutions 8. Incapacity to procure credit loans 9. Labor problems 10.Limited financial base of the promoters 11.Augmenting working capital

Measures:
Measures are of two categories; suggestive and remedial: SUGGESTIVE MEASURES:

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REMEDIAL MEASURES:

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Any questions????