m Introduction

m Definition

m Causes of sickness

m Symptoms of sickness

m Prediction of sickness

m Revival of a sick unit

m Conclusion

m References
m  e Industrial Reconstruction Corporation of India (IRCI) was
establis ed in 1980¶s to provide financial assistance to sick units.
m In 1985 t e Sick Industrial Companies (Special Provisions) Act
1985, was enacted, w ere interested companies were invited to
takeover, lease or amalgamate t e sick company into itself.
m Increasing number of sick, private textile mills w ic were
nationalized became part of t e National extile Mills (NC).
m During t e 1980s, t e Government of India ad set up  e
Industrial Reconstruction Corporation of India (IRCI) to provide
financial assistance to Sick Units, to enable t em to revive under
t eir t en existing structure.
m Later it was converted to  e Industrial Reconstruction Bank of
India (IRBI), to carry t e same function under a different mould.
m RBI defined a sick unit as ³One w ic as incurred cas losses for
one year and, in t e judgment of t e financing bank, is likely to
incur cas losses for t e current as well as following year and/or
t ere is an imbalance in t e unit¶s financial structure, t at is,
current ratio is less t en 1:1 and debt/equity ratio is worsening.´
m erm lending financial institutions classifies a unit as sick after
considering any of t e following symptoms:
 Default in meeting four consecutive alf-yearly installments of
interest or principal in respect of institutional loans.
 Cas losses for a period of two years or continued erosion in net
wort , say by 50 percent.
 Mounting arrears on account of statutory and ot er liabilities for a
period of 1 to 2 years.
m The management·s failure to control the
situation
m Due to factors beyond the control of
management
m  e fact t at it is not able to take corrective actions in time

m Inability to respond to t e demand of t e situation

m Dispute amongst t e management/promoters or deliberate actions

on t e part of t e scrupulous promoters
m C ange in market preferences and S ifts in consumer preferences
m S rinking market s are of company¶s product
m Power or labour problems
m Working capital constraints.
m S ortage of key inputs
m C anges in government policies
m Development of new tec nologies
m Sudden decline in orders from major customer
m Natural calamities
m Delay or default in payment to suppliers
m Irregularity in t e bank account
m Decline in capacity utilization
m Low turnover of assets
m Accumulation of inventories
m Excessive turnover of personnel
m Extension of accounting period
m Poor maintenance of plant and mac inery
m Decline in t e price of equity s ares and debentures
m  e sickness of any unit can be predicted by using
 Univariate Analysis and
 Multivariate Analysis.
m In Univariate analysis, an attempt is made to predict sickness on
t e basis of single financial ratio. Beaver conducted t ree types of
analysis to determine t e predictive power of financial ratios:
 A comparison of mean values
 A dic otomous classification analysis
 An analysis for likeli ood ratios
m  is is a statistical tec nique w ic elps in classifying an
observation into one of t e several pre-specified groups on t e
basis of certain c aracteristics of t e observation. It essentially
involves estimating a function w ic discriminates best between
t e groups.  e discriminate function is usually a linear one.
m W en an industrial unit is identified as sick, a viability study
s ould be conducted to assess w et er t e unit can be
revived/re abilitated wit in a reasonable period. Study generally
covers t e following
 Market Analysis
 Production/ec nical Analysis
 Financial Analysis
 Personnel Organization
 Environment
m The Government has switched the mode from a socialist
approach, which aimed at preserving employment at every
cost, towards a capitalist approach, where efficiency of the
capital employed is of prime concern and the inefficient may
be shown the door and the fittest allowed to survive.
m It is prudent to align ones economic order with the world·s
order of allowing only the efficient/fittest to survive.
m At the same time, a humane approach, to the problem of
sickness of companies might be followed, keeping in view
the fact that a fast track winding up of companies may also
bring about miseries in the lives of people who would be
affected by reason of the loss of their jobs.
m Our country has to still carry along such a population
which does not have any education and may not have many
avenues for employment, other than the industry.
m www.wikipedia.com
m www.investopedis.com
m www.aut orstream.com
m www.icai.org