Let us make in-depth study of the policy measures and reserve bank guidelines for checking industrial sickness.
The Government has initiated a number of measures for the revival of the sick industrial units as well as to prevent the incidence of industrial sickness.
The policy measures are as follows:
1. In October 1981, the Government announced guidelines to its Ministries, State Governments and financial institutions, regarding the sick industrial undertakings. Accordingly, responsibility was assigned to the concerned ministries for the prevention of such sickness as also for coordinated remedial action. Banks and other financial institutions providing credit facilities to the sick units were requested to ensure that such credits are utilised properly.
The aided sick units are required to submit periodical returns to financial institutions. Besides, banks are required to refer the cases of all sick units to the Industrial Reconstruction Corporation of India (IRCI) where term-lending institutions are not involved. (The IRCI has since been converted into Industrial Reconstruction Bank of India or IRBI).
2. The Government also announced a ‘margin money’ scheme (effective from January 1, 1982) for reviving viable sick small-scale units. Under the scheme, a sick small-scale unit was sanctioned a minimum loan of Rs. 1, 000 and a maximum of Rs. 20,000. These minimum and maximum amounts have now been raised.
3. In April 1983, the RBI advised financing banks that they should evolve methods to diagnose sickness in industrial units at the incipient stage itself and bring it to the notice of the concerned Ministries and Finance Ministry.
4. In August 1984, through a Parliamentary Act, the Industrial Reconstruction Corporation of India (IRCI) was converted into a statutory body called the Industrial Reconstruction Bank of India (IRBI). This new bank has been established with a capital base of Rs. 50 crores which could go up to Rs. 200 crores, for the purpose of rehabilitating and reconstructing ailing industrial concerns.
With its head office in Kolkata, the IRBI is wholly owned by the Central Government. Apart from its role as the principal credit and reconstruction agency for industrial revival, the IRBI has been given powers to take over the management, lease out or sell the undertaking as a running concern or prepare schemes of merger or amalgamation and submit them for Central Government’s approval.
5. In 1985, the Sick Industrial Companies (Special Provisions) Act (SICA) was passed. According to it the Government has removed sick industrial companies from the purview of the Monopolies and Restrictive Trade Practices Act, 1969, for purposes of modernisation, expansion, amalgamation or merger. Besides, for the early detection of industrial sickness, instructions have been given to the banks to monitor the progress of sick industrial units.
In cases, where the net worth has been substantially eroded, financial institutions have been directed to stop assistance to the Concerned units. The Act also provides for the setting up of a board of experts for industrial and financial reconstruction.
The Reserve Bank’s Guidelines for Checking Industrial Sickness:
The Reserve Bank of India has suggested to all scheduled commercial banks parameters within which they are considered viable. The Reserve Bank of India has issued guidelines to the banks for re-strengthening the monitoring systems and for arresting industrial sickness at the incipient stage so that corrective measures could be taken in time. It has also asked banks to formulate rehabilitation packages for the revival of potentially viable units.
Some of the fresh guidelines issued by the RBI to scheduled commercial banks regarding the revival of sick units are as under:
(a) Banks participating under consortium arrangement of financing a healthy unit should provide for a clause to the effect that in case the unit turns sick, they would participate in the rehabilitation package in accordance with the instructions issued by the RBI.
(b) In the case of sick units where workers are interested in taking over the management by forming workers’ cooperatives, banks have been advised to actively support the rehabilitation packages.
(c) Banks are given the option of selling their debts in respect of a sick unit to other willing banks at a discount as per the guidelines issued by the RBI.
The Reserve Bank of India has evolved a coordinated approach between banks and term- lending institutions in assessing the viability of a unit once it is identified sick. The earlier ad hoc approach of nursing sick units has given place to a pragmatic package approach to tackle problem of sickness. The new approach puts emphasis on prevention of sickness rather than resorting to remedial measures after the unit becomes sick.
In October 1989, the Government introduced the scheme for the grant of excise loan to sick/weak industrial units. Under the scheme, the sick units are eligible for excise loan not exceeding 50% of the excise duty actually paid for 5 years from the date of approval of the rehabilitation package subject to the ceiling of 33% of the total cost of the rehabilitation.