According to RBI : A sick unit is one which incurs cash

losses for 1 year & which , in the judgment of the bank , is likely
to incur losses for the current year as well as the following year, &
which has imbalances in its financial structure, like worsening
debt equity ratio.
Magnitude of sickness
By End of Large &
medium
Small Total
Mar 1980 22269 21,828 2,21,097
Mar 1998 2476 2,21,536 2,24,012
Mar 1999 2792 3,06,221 3,09,013
Mar2000 3164 3,04,235 3,07,399
Mar2001 3317 2,49,630 2,52,947
The total bank credit locked up in sick units increase form Rs 13134 crore as the
end of Mar 1993 to Rs 13748 as on mar 1996.
Industry sickness is a social problem as its like a
burden on the society.
Industrial sickness policy 1978,
The govt. should make suitable arrangements for
monitoring & detecting industrial sickness at an
early stage
Financial institutes that have substantial stake in
the co. could nominate their employee on the BoD
of the co.s with doubtful management
competency. In case if it finds co is indulging in
malpractices , it can restrict its financial
assistance.
The govt shoud set up a screening committee to
make recommendation relating to sick
undertaking on the following lines
A. in case the govt. finds that a unit can not be
handed back to the same management , it may
recommend a take over to the management


B. in case the financial institutions or the state govt
recommends that the unit should be taken over or the
take over the units is deemed necessary in national
interest, the management should be taken over

C. after take over the management the unit can be
sold as a running concern.
Alternatively a reconstructions of the undertaking
could be done

D. the merger of the unit with the public sector
undertaking could be considered

EXTERNAL CAUSES
INTERNAL CAUSES
Power Cuts
Irregular supply of inputs
Demand & credit restraints
Govt. policy( reduced custom for Chinese electronics)
Wrong location & planning(HMT)
Defective plant & machinery
Entrepreneurial incompetence(Lakhotia STG, Aptech)
Financial problems
Management problem
Inefficient R&D

According to this Act a company can be reported sick at 2 levels.
1. when the erosion of the net worth is of the order of 50%, the
BoD of the sick units has been directed to bring it to the notice of
the shareholders within a period of 60 days from the date of
finalization of the duly audited a/c of the co.

2. when the erosion of the net worth is 100% and more & the
unit continues to show cash losses for the next 2 years , the
management of the unit is required to report to the newly
constituted Board under the Act, which would then take
appropriate action which may involve merging, rehabilitating, or
even winding up after a fresh appraisal through an operating
agency
Commercial banks grants various concessions to the
sick units like additional working capital, recovery of
interest rates are reduced,

Setting up a sick industrial cell in RBI
State level inter-institutional committee

RBI to ensure better co-ordination between banks at
the central & state level

Industrial companies Act 1985: provided for the setting up
of BIFR which has been empowered to look after the matters
relating to sick industries.

BIFR can take the following actions if it finds a company is
sick-
Allowing the co time on its own , as per the scheme already
initiated by the banks/ institutions to make its net worth
positive within a reasonable period

Deciding on the winding up of the co.
Recommendation for restructuring