The government is set to tighten the definition of sickness of small scale industrial units to bring it in line with the recently proposed norms for the large industries in the amendments to the Companies Act.
According to the new definition, a small scale unit will be termed sick if 50 per cent of the net worth is eroded in an accounting year on account of accumulated losses even though the unit has been in production for two years.
Alternatively, if the principal or interest payment to banks remains overdue for a period exceeding one year, the unit concerned will be declared sick.
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At present, there is a two-and-a-half year waiting period before terming an SSI unit sick. The sector is plagued by a high incidence of sickness with nearly 3.5 lakh of the 13 lakh SSI units falling in the category.
It is also proposed that units where there has been willful default, diversion of funds or dispute between promoters, those units will not be considered for revival. The final decision in these cases will rest with the lenders.
In case the unit concerned is found viable, the rehabilitation schedule has to be implemented within six months of the account being declared viable.
These changes were recommended by a working group on rehabilitation of sick SSI units which comprised Punjab National Bank chairman and managing director SS Kohli who is also the chairman of Indian Banks