Sick industries need to be rehabilitated or liquidated

Industrial sickness is an offshoot of modern industrial civilisation. There arises an overriding concern to salvage/revive the sick industrial units when found feasible and possible through applying due diligence, keeping in mind that liquidation would be the last choice when there appears no hope for turning the unviable industrial enterprises into the viable ones. Conceptually a sick industrial company implies an undertaking/enterprise having at the end of any year accumulated whopping losses equal to or exceeding its entire net worth - that is, when the net worth stands eroded.
INDICATORS OF SICKNESS: a) Delays in receiving inward bills/mounting arrears of maturing dues. b) Inordinate delay in submission of stock statements to disclose the reduced stocks. c) The units intending to adhere to banks requirements of working capital within the limits will do so for sometimes despite erosion of working capital due to reduced sales resultant losses at the cost of increased creditors or market borrowings. d) Further drawings are not allowed by the banks due to non payment of interest and as a result the outstanding advances will keep on increasing. e) Irregular tendencies from the account like frequent bouncing of the cheques on financial ground, frequent excess over limits, non adjustment of over dues/excess/nonpayment of installment/interest, increasing over dues in bill purchase/bill discounting, non retirement of shipping documents against LCs/invocation of claims of guarantee. f) Diversion of working capital fund for acquiring fixed assets. g) Opening of accounts with other banks under apprehension that the bank may use the credit proceeds for realisation of over dues leaving no balance for meeting his day to day requirements for operating expenses resulting in low or no turnover in the account. h)  Adverse movement of current ratio, liquidity ratio, inventory/turnover ratio, gearing ratio, low profitability, adverse result of CRG (Credit Risk Grading) as worked out on the basis of the financials. i) Non-compliance of the terms & conditions of sanction, non-submission of stock statement/monthly flash data regarding production, sales, and purchases with an intention to conceal/suppress vital information. j) Non-payment of utility bills/installment against term loan/project finance.
MAJOR CAUSES OF SICKNESS: Internal managerial deficiency: i) Lack of proper education, training, experience and business outlook of the sponsors/entrepreneurs. ii) Poor entrepreneurial skills. iii) Management/succession plan not identified. iv) Poor equity base. v) Lack of integrity/honesty. vi) Faulty project planning and appraisal.
Production/technical:  i) Wrong choice of technology/production process. ii) Improper utilisation of production capacity. iii) Imbalanced and defective machinery/ obsolescence. iv) Poor raw-material planning. v) Inadequate Quality Control vi) Poor labour relations/turnover vii) Location problem/inadequate infrastructural support.
Marketing: i) Lack of market planning/forecasting. ii) Inadequate market survey/lack of perceptual accuracy. iii) Poor collections/receivables turnover. iv) Defective pricing/non-competitiveness.
Finance: i) Poor management of financial resources. ii) Delay in mobilisation of equity funds. iii) Faulty costing diluting the equity. iv) Adverse debt-equity mix. v) Lack of proper accounting system/faulty recording of information.
Personnel: i) Lack of core competence. ii) Lack of loyalty. iii) Lack of professionalism. iv) Lack of team spirit.
Government policy & implementation: i) Frequent policy changes. ii) Lack of proper implementation of industrial policies. iii) Liberal import policies. iv) Poor infrastructure/frequent power disruption. v) Smuggling. vi) Fiscal anomalies. vii) Exchange rate fluctuation. viii) Lack of co-ordination between various ministries and government departments, etc. ix) Over-saturation of particular industry type/sector due to wrong policy. x) Non-availability of raw materials, etc.
 Bank & financial institutions: i) Non-availability/inadequacy of working capital. ii) Lack of required financial assistance for BMRE ((balancing, modernisation, rehabilitation and expansion). iii) High rate of interest on bank loan. iv) Lack of timely decision & support by the banks and financial institutions.
 Environment: i) Political and social unrest. ii) Labour unrest. iii) Market recession. iv) Delay in project implementation/time overrun.
WAY OUT MEASURES IN GENERAL: i) Waiver of 100 per cent penal and 50 per cent-100 per cent normal interest. ii) Rescheduling of outstanding loan for repayment in easy installments. iii) Provision of necessary working capital, financial and technical assistance to BMRE cases after conducting fresh feasibility studies. iv) Withdrawal of all filed suits. v) Supply of electricity and other utilities on a regular basis. vi) Unnecessary delays in providing financial assistance and support to be avoided. vii) Lowering of interest rate on industrial loan. viii) Introduction of special insurance scheme on easy terms for natural calamities. ix) Compilation of accurate statistics for investment decision where necessary for upgradation of capacity to take the benefit of economics of scale. x) In order to provide protection to home industry, imports of goods which are locally produced abundantly, should be discouraged. xi) Macro-economic policy changes in the positive direction. xii) Ensuring of socio-political stability in the country. xiii) Sub-sector-wise long-term policy. xiv) Implementation of the announced polices within specific time frame. xv) Continuation of benign policy. xvi) Development of small industry sector. xvii) rationalisation of tariff.  xviii) Boosting up of medium and small-scale industries. xix) Improvement of infrastructural facilities. xx) Monitoring of saturation in a particular industry/sub-sector. xxi) Development of linkage industries. xxii) Active support of banks and financial institutions. xxiii) Expansion of market base, both locally and through export. xxiv) Facilitation of enabling and conducive environment.
Bank and financial institutions, which have sizeable number of sick industries in their portfolio, may have a "Project Rehabilitation Cell" manned by the experts of the relevant disciplines. There should be an ongoing process of evaluation of the heath of the assisted units by the banks to detect early warning signals. This kind of financial prescription warrants co-operation of both the client and banker to churn out the desired result. Genuine sick units capable of being revived should be brought under rehabilitation package by way of rescheduling of existing loans, waiver/remission of interest payments, conversion of short-term liabilities into long-term obligations, considerable slashing of interest rate to allay the debt burden depending on the merit of the particular case.
Possibility of merger/selling out the non-viable concerns of the group may be explored as part of cleansing the cobwebs of backlog problem. In some cases it is found that the groups of industries have become sick due to over indebtedness/excessive borrowing beyond the capacity of repayment i.e., hard hit by the liquidity crunch. It is very much preferable for the sick industrial units of these categories to exercise the option of liquidation of their fixed assets to generate cash for deleveraging as well as injection of equity fund in the enterprises which are found prospective to make turnaround if managed professionally and by taking lessons from their past experience of errors/mistakes.  
If necessary, change in management/ownership composition of the sick units/enterprises may be considered where necessary through co-option of a strategic partner as a measure of restoring financial health. Only financial and management rehabilitation of the sick units will not bring the desired result unless government assistance in the form of reduced taxes, duties, concessions on various charges like gas, electricity, etc., imposition of restriction on related import items etc. are made available. Bangladesh Bank may set up a 'Sick Industry Cell' to monitor the performance of the lending institutions in handling the problems of sick units and to co-ordinate the rehabilitation efforts of banks, financial institutions, government and other agencies involved. Bangladesh Bank may introduce refinancing/interest subsidy scheme for the sick industries for certain extent of time, i.e., incubation period as required for bailing out the particular industrial enterprise from the vicious cycle of sickness. This kind of benevolent scheme will create enabling situation for the banks/financial institutions to finance the sick industries in their portfolio, specially during the incubation period, at the concessional bottom line interest rate. If some industrial units are found not responsive to the restructuring/rehabilitation strategies and their survival despite the exhaustive remedial measures remain under threat in that case those concerns should be allowed to succumb to the sickness as an instance of natural death.
As a nation we have our destination to reach the middle income growth trajectory. That requires investment to the extent of 32 per cent and above of our GDP (Gross Domestic Product) from the existing 25 per cent. Huge investment was made in the sick industries but their economic value is not realizable and this have become a heavy burden on the economy in general.  
If the sick industries are rehabilitated in the right perspective and in a sustainable manner, it will augur well for creation of more employment opportunities. The importance and contribution of this category of enterprises/industrial undertakings for achieving quantum leap in GDP growth cannot be over-emphasised.   
The writer is Deputy Managing Director of Mercantile                        Bank Limited. mmasoom60@gmail.com